HSC Business Studies Revision Guide PDF

10.
4 HSC TOPIC HUMAN RESOURCES
HSC Business Studies

Syllabus Revision Guide
CONTENTS:
10.1 OPERATIONS .. 2
1. Role of operations management 3
2. Influences 5
3. Operations processes 8
4. Operations strategies 14
5. Operations super summary 23
6. Operations acronyms 25
10.2 MARKETING . 26
1. Role of marketing 27
2. Influences on marketing 30
3. Marketing process 33
4. Marketing strategies 38
5. Marketing super summary 47
6. Marketing acronyms 49
10.3 FINANCE ........ 50

1. Role of financial management 51
2. Influences on financial management 53
3. Processes of financial management 56
4. Financial management strategies 64
5. Finance super summary 70
6. Finance acronyms 73
10.4 HUMAN RESOURCES ..................... 74

1. Role of human resource management 75
2. Key influences 77
3. Processes of human resource management 83
4. Strategies in human resource management 86
5. Effectiveness of human resource management 90
6. Human resources super summary 92
7. Human resources acronyms 95
THE BUSINESS REPORT ............ 96
HSC Business Studies Syllabus Revision Guide Page 1

10.4 HSC TOPIC HUMAN RESOURCES
10.1 HSC Topic: Operations

Outcomes:
The student:
H1 critically analyses the role of business in Australia and globally
H2 evaluates management strategies in response to changes in internal and external influences
H3 discusses the social and ethical responsibilities of management
H4 analyses business functions and processes in large and global businesses
H5 explains management strategies and their impact on businesses
H6 evaluates the effectiveness of management in the performance of businesses
H7 plans and conducts investigations into contemporary business issues
H8 organises and evaluates information for actual and hypothetical business situations
H9 communicates business information, issues and concepts in appropriate formats
The focus of this topic is the strategies for effective operations management in large businesses.

10.1 HSC TOPIC: OPERATIONS
1. Role of operations management

All goods and services are the result of deliberate decisions to design, conduct and continually improve
systems of production, i.e. operations management.
Operations management involves planning, organising, co-ordinating and controlling the transformation or
inputs to outputs to meet the requirements of customers. It is about providing products reliably with
consistent quality.
Strategic role of operations management cost leadership, good/service differentiation
As consumers can easily purchase goods from competitors, a competitive advantage must be developed.
To gain a competitive advantage, the following must be addressed:
Cost leadership involves providing consumers with the best value for a relatively low price. Market share is
gained by appealing to price-sensitive customers (those who consider price important) by offering either the
lowest price or the lowest price compared to the value the customer receives.
Cost leadership can also be gained by achieving low operating costs from offering no-frills products using
fewer components and with a limited variety, e.g. Tiger Airways.
Product differentiation involves making a product that has different or unique features which enables a
company to charge a premium and achieve above average returns. The differentiation feature (specialty) can
be associated with design, technology, brand image or after-sales customer service.
The resulting brand loyalty is likely to lower the customers sensitivity to price, i.e. a higher price can be
charged. Brand loyalty can block out competition, who will have to come up with their own unique
differentiating feature. Sometimes a product is differentiated by the owner, e.g. Steve Jobs with Apple.
Basically, higher profitability can be achieved by either:
- Successful differentiation high margins selling lower volumes.

- Successful cost leadership low margins selling high volumes.
Focus or strategy scope determines whether a business uses cost leadership or product differentiation, e.g.
Woolworths uses cost leadership.
A focus strategy involves targeting market segments where competition is weakest so above-average returns
can be made.
Goods and/or services in different industries
Different industries provide very different goods and services. For example, in the school education system,
operations is about what happens between teachers and students. In manufacturing, the operations deal with
the production and assembly tasks carried out by workers in the factory.
Operations management relates to producing goods and services. In big business this can have a much larger
scope, being on a global scale.
Operations may be complex, requiring management of production for many different businesses at the same
time and for multiple goods and services.

Interdependence with other key business functions
Operations has a flow through affect influencing all aspects of business, e.g. in car manufacturing, staff levels,
training and work schedules need to be determined so quality products are able to be produced without
bottlenecks being created.
This means that the size and organisation of a facility is linked to production levels, which is determined by the
target market size. This, in turn, determines the qualifications and equipment needed to ensure efficiency.
Target market size of facility production levels qualifications and equipment needed
Operations management becomes the core to which all other business functions contribute, i.e. it actually
makes the product.
Suppliers and customers are closely linked to operations management. Finance has to be managed to provide
the funds needed by the suppliers and the employees to help produce the goods. Finance is also essential for
marketing to sell the goods and services.

2. Influences
Globalisation, technology, quality expectations, cost-based competition, government
policies, legal regulation, environmental sustainability
Operations management occurs in a dynamic environment, i.e. constant change.
Business that doesnt adapt to change decrease in customers (market share) decrease in profits, e.g.
Coles in the early 2000s compared to Woolworths.
A business must constantly change and respond to the influences of the environment. These influences
include:
1. Globalisation:
Globalisation is a process that is leading to the development of a single world market. Globalisation is the
result of the decrease in communication and transportation costs.
Distances are no longer a barrier for business as governments have deregulated their systems to open their
economies, resources are now global and finance can be easily borrowed from countries like Japan, China and
USA.
Australian businesses can now borrow from overseas and have a global labour force, e.g. over 5,000 Telstra
employees work overseas.
Globalisation has resulted in the development of factories in low wage countries such as Bangladesh, Thailand
and Vietnam. This has enabled businesses to outsource tasks that are low skilled and repetitive.
Outsourcing is where and outside business manufactures a component part or assembles a product for the
operations function, e.g. Jetstar is now employing flight and maintenance crews from Singapore.
Due to globalisation, both the production of goods and the market place where they are sold are global.
2. Technology:
Technology is the knowledge of how things are done concerning both the hardware and software components.
Not keeping up with technology changes, particularly in relation to equipment and operations methods, will
lead to business failure. While new technology wont necessarily lead to a competitive edge, it will prevent loss
of competitiveness, e.g. car manufacturers introducing robotics, Qantas purchasing the A380 as it is more fuel
efficient and carries more passengers.
3. Quality Expectations:
Quality is meeting, or exceeding, a customers expectations.
In the 1980s and 90s, quality was the main focus for operation managers. The Japanese called it lean
production, i.e. decrease costs, ensure that products meet their design specifications and improve every
aspect of the operations process (TQM Total Quality Management).
We now expect products to be of high quality so now the emphasis is on customisation.

4. Cost-based Competition:
Cost-based competition is concerned with driving down the costs of warehousing and transportation while
spreading overhead costs.
Business gains cost advantage lowers prices attract customers from competitors, e.g. Woolworths did
this with its warehousing and transportation logistics and gain market share over Coles.
Overhead costs are the ongoing costs of a business, e.g. rent, electricity, wages. When a business is open 24
hours, (e.g. Kmart) overhead costs are spread over a higher inventory turnover.
Cost-based competition does not try to cut costs through low value or low quality, but rather provides
customers with the best value for money. The customers perception of value and quality is very important.
5. Government Policies:
Government policies include regulations, subsidies, grants, taxes and tariffs that encourage or discourage
aspects of the operations function.
Different political parties have different views on important matters, e.g. Gillards Labor government
introduced the Carbon Tax.
It has been government policy to encourage car manufacturers in Australia to develop and manufacture
products towards a greener future ($6.2 billion was given as assistance withdrawn from budget in 2011).
Sometimes when a government sees a product as undesirable, they implement policies against it, e.g. tobacco
packaging regulations and tax increase on pre-mix alcoholic drinks (alco-pops).
6. Legal Regulations:
Legal regulations are the laws that regulate the way things can be done. They are important because of the
potentially dangerous aspects of using equipment.
The Occupational Health and Safety (OH & S) Act of 2000 was put in place to provide a safe working
environment.
Most responsible operations functions go further than OH & S by developing a culture of safety.
7. Environmental Sustainability:
Environmental sustainability is concerned with air, waste, water and environmentally sustainable products and
operations practises. Many operations functions impact on these, therefore strategies must be developed to
reduce their impact.
Customers are now very aware of the need for environmental sustainability and it often sways them to select
one product over another, e.g. Walmart and Orica have already developed strategies to reduce emissions and
are working towards carbon-neutral goals.

Corporate social responsibility:

- the difference between legal compliance and ethical responsibility
- environmental sustainability and social responsibility
Corporate social responsibility:
Corporate social responsibility refers to the relationship between business and the broad society and the way
this relationship is perceived and managed.
The focus of corporate social responsibility is to make sure business activities have a positive impact on society
and, more specifically, the stakeholders of the business. This does bear a cost to the business and creates a
problem, i.e. profit vs corporate responsibility, e.g. Bluescope Steel would experience additional costs with a
Carbon Tax, but it is argued that a Carbon Tax is needed by the broader community. Also, ANZs Indigenous
mentoring and employment program in towns such as Moree benefits the community.
The difference between legal compliance and ethical responsibility:
Legal compliance is concerned with obeying the letter of the law, i.e. law abiding.
Ethical responsibility is concerned with doing the right thing and having a positive impact on the society in
which the business operates.
Doing the wrong thing can have economic advantage, but rarely in the long run, e.g. The Australian Wheat
Board (AWB) paying kickbacks to Saddam Hussein was profitable short term until it was made public and then
their share price plummeted.
Environmental sustainability and social responsibility:
Environmental sustainability is the ability to maintain the qualities that are valued in the physical environment,
mainly concerned with energy efficiency, climate change and water and waste management. There is an
increased concern regarding this, both in the wider community and in the impacting business.
The main focus of energy efficiency and climate change is to decrease the business carbon footprint through
things like the Carbon Tax.
Water can have a huge impact on a range of businesses, e.g. cattle farming and cotton growing. The focus is
now on water recycling. One of the problems with water is that it is an externality (something that the
community bears the cost of rather than the business, e.g. community pays for roads rather than road
transport companies.
Waste management refers to the collection, transportation, processing and recycling of waste materials. The
focus is on businesses to decrease waste, mainly by recycling, e.g. BMW use a lot of recycled materials and
around 80% of a BMW car can be recycled.
Levi Stauss & Co has three objectives concerning environmental sustainability. They are aiming to achieve
carbon neutrality and 100% renewable energy (energy efficiency and climate change), reduce water usage
(water) and become a zero-waste company (waste management)

3. Operations processes
Operations processes are the activities involved in the transformation of inputs into outputs. This may also be
referred to as the production system or operations system. Inputs such as skilled labour, machinery, raw
materials and/or component parts are used to transform customers (e.g. haircut), transform information (e.g.
newspaper) or transform materials (e.g. mobile phone).
Each activity adds value so that the output has a greater value than the cost of inputs.
When assessing the performance of the operations functions, the manager determines how effectively the
business:
- makes and assembles raw materials and components into finished goods and services
- distributes to wholesalers, retailers and customers
- provides after-sales customer service
Some approaches are:

- Top down approach the operations business function interprets and aims to play its role in
achieving the business objectives.
- Systems management approach focuses on integrating operations with the other key functions
to create sustainable competitive advantage.
Inputs:
- transformed resources (materials, information, customers)
- transforming resources (human resources, facilities)
Inputs the inputs in an operation system are the:

- physical raw materials
- skills/knowledge
- machinery
- component parts
Intangible inputs time and money
Inputs can be classified as:

- Materials, e.g. raw materials, component parts
- People, e.g. labour, managers
- Physical, e.g. factory and office buildings, land
Customers can also be transformed physiologically, (e.g. hospitals, dentists, surgeons, fitness instructors etc.)
or psychologically, (e.g. theatres, cinemas, theme parks etc.) Transportation changes customers location.
- transformed resources (materials, information, customers)
Transformed resources are the inputs that are changed or converted into something else as component or a
finished good or service.
Businesses use a combination of transformed resources (materials, information and customer), e.g. Qantas
uses fuel, equipment and information. Customers are transformed by changing their location.
The types of transformed resources are:
Materials the raw materials, component parts and supplies used during the operations process.
Information stored in files, in computer programs and in databases. This information is used to make plans,
execute operations and keep controls over material inputs. Information comes from the analysis of the

performance of the operations system. In Australia, there is a big move away from manufacturing to
quaternary and quinary industries.
Customers can be changed in different ways, e.g. customers feel value has been added to their lives after
going on a cruise, watching a film or visiting a theme park.
- transforming resources (human resources, facilities)
These are the resources that remain in the business and are applied to the inputs to change them to add value.
Human resources different to the rest of the inputs in a business, i.e. the human resources do the
transforming. They apply the skill, knowledge and capabilities to materials to transform them into goods and
services. The human resources function provides the business with suitably qualified, skilled and experienced
employees.
Facilities these are the buildings, machinery, land, equipment and technology the business use in operations,
e.g. Coca-Colas Northmead Factory utilises an automated assembly line.
Transformation processes:
- the influence of volume, variety, variation in demand and visibility (customer contact)
- sequencing and scheduling Gantt charts, critical path analysis
- technology, task design and process layout
- monitoring, control and improvement
Transformation processes the activities that determine how value will be added. These processes can add
value in four ways:
- physical altering of the inputs or the changes involving customers
- transportation of goods or services, e.g. having them shipped to a different location
- protection and safety from the environment
- inspection by giving customers a better understanding of the good or service
- the influence of volume, variety, variation in demand and visibility (customer contact)
Most operations processes are similar; however, the differences come from the 4Vs, (volume, variety,
visibility, variation). The influence that is most important depends on the type of production that is being used.
The production methods are:
- Job suits those products and service that require customer requests. It is a highly flexible
system but with low output, e.g. designer homes and cars costs per unit are high.
- Batch products are made in batches or groups, e.g. bakery suits businesses that have
variations.
- Flow involves a continuous flow of inputs and outputs. It is often associated with assembly
lines. Products have little variation, e.g. Fuel refineries costs per unit are low.
Volume:
The most effective way to decrease costs is to produce large amounts of the same thing. A business producing
high volumes will have a high degree of process repetition. A business with customization and low production
will have many stoppages and adjustments. When volume is the most important factor, there will usually be a
high level of equipment and technology and less labour, e.g. assembly lines using convey belts will be utilised.
e.g. of high volume Dominos Pizza
e.g. of low volume Matt Morans restaurant ARIA

Variety:
Sometimes customers want variety or flexibility rather than the lowest price, e.g. wedding reception venues.
Variety refers to the number of different models and variations offered in the products or services. A business
producing a high volume product with low variety will be capital intensive.
e.g. of high variety financial advice at Yellow Brick Road
e.g. of low variety Apples iPhone (same for each customer)
Variation:
Variation is associated with the changes that can occur due to the time of day, season, holidays and time of
year. When there are steady levels with no variation, there will be high volume and capital costs.
e.g. of high variation Thredbo Ski Resort
e.g. of low variation Dairy Farmers Milk
Visibility:
Visibility is concerned with customer contact. Operations will be influenced by the degree to which customers
can see the operations in action. Service-based businesses have a high level of visibility. Speed of operations
can be important as customers usually have a low tolerance for waiting.
e.g. of high visibility Subway
e.g. of low visibility chicken growing/production at Steggles Chicken
- sequencing and scheduling Gantt charts, critical path analysis
Scheduling and sequencing:
Sequencing is the planning of activity that decides on the order in which the work is to be performed. In most
cases it is done on the basis of due date.
Scheduling is a term used to indicate a detailed timetable of what work is to be done, when it is to be done
and where it is to be done (e.g. your school time table). In bigger businesses, it involves matching things like
employee skills, machine capacity and completion times.
Sequencing and scheduling tools are used to identify all steps in the operations process and organise them into
the most efficient order to complete.
There are two approaches to scheduling:

- forwards scheduling the work is started as soon as it is received
- backwards scheduling the work is started just in time to meet the delivery time or deadline
Task analysis is the breakdown of exactly how the activities to manufacture a good, or to provide a service,
are to be accomplished.
Gantt charts:
The most common form of scheduling is where activities are represented as a Gantt chart. It represents
activities as a bar chart. They show the start, finish and progress of an activity. They record the number of
tasks involved in each particular project and the estimated time needed for each task, but will not show the
relationship between each of the tasks. Dates can be set for the completion of tasks. Gantt charts allow the
business to compare the actual progress to the original expected progress and to effectively communicate the
progress of activities to employees.

Critical path analysis:
Large projects involve a network (i.e. a group or system of interconnected people or things). A critical path
analysis (CPA) is an appropriate scheduling tool for use in an operation that involves a series of repeated tasks.
It is a flow diagram that shows the interrelationship of tasks. The critical path time period is the longest
sequence of activities through a project network. A delay in activities means the whole project is delayed.
In this example, each

number indicates how
many weeks it takes to
complete each stage or
task. To calculate the
critical time period from
task A to task F, the longest
sequence must be
calculated (i.e. 4+4+4+4 =
16 weeks).
- technology, task design and process layout
Technology:
The most significant change in the last couple of decades is the way technology is used in the transformation
process. The machines and equipment used to transform inputs into outputs are called process technology.
Process technologys largest effect is computerisation, e.g. Robotics used at Coca-Colas Northmead Factory,
the Airbus A380 which is on auto pilot 94% of a flight.
Product technology is the innovation in the products themselves. Technology can give the business more
flexibility as it:
- Allows the business to respond to changes in the market more easily, e.g. changing volumes and
variations.
- Allows the business to apply software modelling programs, the internet and wireless
communication to the process.
Flexible manufacturing systems integrated approach to using technology
Task design:
Task design is the way the overall transformation process is broken down into manageable activities (e.g.
Apples iPad). It is concerned with working out the most efficient and effective transformation process. It must
be ensured that the employees have the appropriate skills, knowledge, capabilities and equipment to do the

job. Task design allows ongoing analysis and adjustments in each activity to ensure continuous improvement in
productivity. Task design and product design must be done together to ensure maximum efficiency and
effectiveness in the transformation process.
Process layout:
Process layout refers to the physical location of the transforming resources. It determines the way the
transformed resources (materials, information and customers) flow through the operation. Tasks must be
allocated to transform the resources the most efficient and effective way.
A process layout is where all the machinery is arranged by what they do. The product/service moves from
department to department depending on what transformation is needed, e.g. a machinery shop has the drills
in the one section, the grinders in one section etc. and the product moves from department to department. A
process layout is more flexible than a product layout.
Product layout arranges activities in a line according to the sequence of operations for a particular product or
service, e.g. car assembly line at Ford. Product layouts are used for assembly line manufacturing of large
volumes of goods with few variations.
- monitoring, control and improvement
Monitoring for a business refers to knowing how well its operations are working. It involves collecting
information about the performance of operations process. These include:
- quality
- speed
- dependability
- flexibility
- customisation
- costs
Data needs to be collected about:

- Operation costs
- Waste from operations
- Defects
- Speed of manufacturing
A business plans must be monitored to check whether the planned activities actually occur. The output can be
compared to the planned output. The purpose of monitoring and control is to ensure the operations process
runs efficiently and effectively, producing the goods and services it was designed to do.
Control is the process of comparing actual output with what was the planned output for that centre.
Adjustments can be made if things go wrong. Sometimes these adjustments are radical, e.g. Pacific Brands
relocating to China.
Improvement is the function that suggests that adjustments and readjustment may need to be made to day-
to-day activities in the short term, and even the entire operations process in the long term. Continuous
improvement is the most common and involves the continuous search for small incremental steps that
improves the operations function. TQM (total quality management) puts improvement (particularly improving
quality) at the core of every activity of the business (e.g. Toyota factory). Just-in-time (JIT) or lean
improvement is designed to meet the customers requirements immediately with a quality product and no
waste (e.g. Coca-Colas Northmead factory).
Improving operations is a key strategic goal. There can be improvements in the following areas:
- Quality by getting it right the first time and having defect-free products and error-free services.
- Speed by increasing speed of production and delivery of services
- Dependability by being on time with a reliable operations system, and employees

- Flexibility through having processes that are able to change

- Cost improvements by being efficient and productive to offer more value
Outputs:
- customer service
- warranties
Transformation process outputs (either products [tangible] or services [intangible])
Outputs are the final products or services that a business offers to customers. They may be the final services or
educated people (from the input of education). Outputs in banking are home loans and investments. Outputs
in education are socially responsible young adults.
Customer service:
Customer service often determines whether a customer will chose a business product over a competitors. It
refers to the interaction between customers and the provider of the product/service. It is a service provided to
customers before, during and after a purchase. Customer service is an intangible output that requires
extensive contact with customers. Good customer service will increase consumer satisfaction. Customer
service features include handling customer returns, answering questions and following up customer enquiries.
Warranties:
A warranty is an assurance that a business stands by the quality claims of the products they make and provide
to the market. It is a contractual agreement between the manufacturer of the product and the customer.
Under Australian law, all goods must have a level of quality, be suitable for the job, match the promotion and
be free from defects. This is an implied warranty. Potential customers often find that a number of products
meet their needs (e.g. cars, whitegoods etc.) and therefore, it is post-sales factors that become important.
Businesses must comply with the Fair Trading Act 1987 (NSW) and Competition and Consumer Act 2010 (Cth).

4. Operations strategies
Operations strategies include:
- The activities involved in the production of a goods and supply of services.
- Specific decisions about what and how the business produces goods and supplies services.
- The influences on operations strategies must be considered by operations managers.
Performance objectives quality, speed, dependability, flexibility, customisation, cost
Performance objectives are the key areas of focus for operations and are therefore part of a businesss
competitive strategy. Stakeholders judge the operations function and the aspects of operations performance
they are judging are the performance objectives. Quality, speed, dependability, flexibility, customisation and
cost are the main performance objectives.
Quality having the highest quality goods and services. Good quality prevents costs caused by product recalls
and repairs. Dimensions to quality are:
- Performance- does it do whats claimed
- Durability- does it last?
- Aesthetics- does it look good?
- Serviceability- is it convenient to repair
Speed producing goods faster and delivering services faster. This relates to productivity. Productivity is
output divided by input and is sometimes measured in output per unit of time. CAD (computer aided design)
and CAM (computer aided manufacture) can increase the speed without compromising quality. A risk of
increasing the speed of operations is that quality may suffer.
Dependability consistently good in both quality and performance. It involves being reliable in providing what
outputs are needed and when they are required. There is also dependability in delivery or supply how well
can the business always fill orders and distribute to markets.
Flexibility being more flexible than competitors and being able to make changes to operations. Businesses
need to match the increase in demand and avoid a stock-out where the business runs out of inventory.
Customisation modifying a standard product to meet the individual needs of the customer. Custom
designers can usually command a premium price.
Cost producing cheaper, more efficient and with better productivity than competitors. A key measure of
costs is using efficiency ratios and average costs. An important objective for costs involves the break-even
point. Used to determine the point at which business starts to make a profit.
Costs can be categorised as:

- Fixed do not change as output changes
- Semi fixed parts are fixed and parts are variable
- Direct are directly related to production
- Variable do change as output changes
- Indirect sometimes called overheads, e.g. salaries of administration staff.
New product or service design and development
New products must be developed for a business to maintain competitive advantage. New product design is a
lengthy and expensive process. Only a few products make it to final production from the large number that
may be initially developed.
Many businesses do not have the financial resources, knowledge or time to develop new products. This is why
a business might supply their own version of a competitors new product and avoid the expense and risk of

product development, e.g. HTC entering the smartphone market after the proven successes of Apple, Samsung
etc.
The new product development process is as below:

1. Concept development many ideas are discussed and assessed.
2. Cost benefit analysis economic analysis to determine if the product is worth pursing
3. Production design engineers design the product, work through technical difficulties and create
features
4. Product testing feedback from testing and market research
Supply chain management logistics, e-commerce, global sourcing
Supply chain management:
Supply chain management refers to those activities that procure materials and services, transform them into
products and services and then deliver them to a customer.
e.g. the supply chain of pumpkins:

Pumpkin grower transported to wholesaler transported to Woolworths store customer
Logistics:
Logistics management is concerned with all the business activities that acquire the materials, moving and
storing them. This is important as most things come from outside the business.
The logistics function is often outsourced to specialist businesses, e.g. DHL, Fox, FedEx. These specialist
businesses have the expertise in things like tracking shipments.
Alternative distribution systems available:
Transportation Type Advantages Disadvantages

Road (trucking) - Flexibility (just-in-time) - Lacking capacity
- Low cost - Increased pressure on road
- Reliable infrastructure
Railroad - Low cost - Lacking flexibility
- Able to move large volumes
Shipping (containerisation) - Enormous quantities - Lacking speed
- Very low cost
Air Freight - Speed - Costly
Logistics is crucial because it can gain a competitive advantage. It isnt cheap but the advantages are
incredible, e.g. Woolworths spent billions.
E-commerce:
E-commerce refers to the use of the internet for all aspects of commercial transactions. In recent years an
electronic marketplace has emerged that has facilitated business-to-business commercial activity for both
buyers and sellers (online shopping).

When businesses use e-commerce with their supply chain it is called e-procurement. E-procurement refers to
electronic methods, primarily through the internet, used in the purchasing process. E-procurement:
- makes it easy to find suppliers on the internet which increases competition and keeps prices
lower
- lowers administration costs because documents can be easily exchanged over e-mail
- saves time
- develops more effective partnership with suppliers
Global sourcing:
Global sourcing is where products are acquired outside the home country. Businesses are increasingly sourcing
raw material and component parts wherever they are cheapest, particularly from low-wage countries like
Bangladesh, Vietnam, Thailand and India.
Global sourcing is done to decrease costs. It has been made possible by the developments in transportation
(particularly containerisation).
Outsourcing advantages and disadvantages
Outsourcing is when goods and services that would normally be a part of the business are obtained outside the
business. In relation to supply chain management, it can provide significant value to the business, e.g. Apple
purchased screens from LG and microprocessors from Samsung for the iPad 2.
When businesses start, they conduct their business internally, except for accounting reports. If the business
excels and grows, it is due to its strengths (core competencies). Therefore, managers concentrate on the core
competencies and outsource the activities that other businesses do better and at a lower cost.
There are some risks associated with outsourcing, particularly to overseas, e.g. Jetstar is experiences industrial
relations problems after outsourcing to Singapore, Pacific Brands (Bonds, Hard Yakka) outsourced but have
discovered transport costs are higher and quality is an issue.
Advantages and disadvantages of outsourcing:
Advantages Disadvantages
- Provide greater flexibility increase or decrease - Danger of future competition the supplier may
the quantity of products it wants manufactured. gain expertise by manufacturing and design a
- Access to the best technology specialist competing product.
businesses have the best technology. - Human resource problems outsourcing means
that jobs are lost.
- Language problems language differences can
make communications difficult.
Technology leading edge, established
Technology is knowledge of how things are done, both hardware and software components.
Leading edge technology is the foremost position, the very latest way of doing something. It is most evident in
the area of computer chips and microprocessors, which have enabled products such as mobile phones,
computers and robotic equipment to offer more benefits to the customer, e.g. Walmarts new radio-frequency
identification (RFID) technology which sends a notification to the suppliers every time a product is purchased,
ordering a replacement. This greatly lowers storage costs.

Established technology is the way something has been done for some time, e.g. the technology used for
milking machines has been used for hundreds of years (however, the new robotic milkmaid is an example of
leading edge technology).
Inventory management advantages and disadvantages of holding stock, LIFO (last-in-

first-out), FIFO (first-in-first-out), JIT (just-in-time)
Inventory management is often called stock and refers to the store of transformed resources waiting to be
processed.
In manufacturing operations the inventory may consist of the raw materials and component parts received
from suppliers or the partly finished products in the transformation process, called work-in-progress.
Sufficient raw materials are needed to maintain the operations process, i.e. no downtime, e.g. if the Coca
Cola factory in Northmead has too few empty cans, then the process stops. On the same note, if there are too
many cans, there are additional costs of storage and the higher cost reduces profits. Having no downtime is
crucial as inventory of finished goods is needed to supply customers whenever the customer wants the
product.
Inventory management is crucial for customer service as it represents a huge cost for most businesses.
Inventory is often between 30% and 90% of a business resources (called assets), e.g. for Kmart to be
successful, thousands of items of inventory are needed as customers are rarely prepared to wait.
Advantages and disadvantages of holding stock:
- Lower cost large batches (bulk) of particular - Cost of storage
raw materials or component parts might result - Danger of obsolescence out of date with latest
in lower cost through quantity discounts. trends, e.g. mobile phones are usually
Handling and transportation costs will also be superseded within 6 months.
lower. - Packaging/stock damage after being kept for a
- Allows a buffer holding stock allows a safety long time
aspect for when customers demand or inventory - Perishability going off
from suppliers is uncertain. - Shrinkage stock that is not accounted for
between when its received and sale (1% - 3% of
inventory)
- Finance tied up in stock could be used for
something else, e.g. training
Inventory takes a lot of a business short-term resources or current assets. Therefore inventory has to be
valued. This is important as it affects profit and the amount of tax a business pays.
LIFO (Last-in-first-out) a method of recording the value of inventory. Using this method, the inventory is
valued on the last price paid for inventory. This means that stock purchased earlier and cheaper is valued at
the same price as the latest stock, which is usually more expensive (inflation). This decreases the tax a business
pays and is illegal in Australia.
FIFO (First-in-first-out) is a method where stock that is left over at the end of the year is valued based on its
replacement value (i.e. current cost of the materials from suppliers). The COGS (cost of goods sold) includes all
costs involved in getting the goods to the shop (invoice costs, transport costs and insurance costs). For this
reason COGS is calculated on the invoice cost of the stock, i.e. the different prices which were paid earlier in
the accounting period.

JIT (Just-in-time) eliminates any activity in the entire supply chain that does not add value to the final
product. It can also be called lean operations. The aim of JIT is to eliminate all types of waste such as over-
production (where more is produced than is need for the next activity), storage costs and downtime (waiting
time on resources, e.g. if labour or equipment is idle due to a machine braking down or an order of raw
materials hasnt arrived).
The goal of JIT is to create a business culture in which all employees are encouraged to come up with ideas
that could lead to continuous improvement. Russel and Taylor (2005) set out the following principals for
continuous improvement:
1. Create a mind set for improvement do not accept that the present way of doing things is necessarily
the best.
2. Try and try again dont seek immediate perfection but move to your goal by small improvements,
checking for mistakes as you progress.
3. Think get to the real cause of the problem. Ask why five times.
4. Work in teams use the ideas from a number of people to brainstorm new ways.
5. Recognise that improvement knows no limits get in the habit of always looking for better ways of
doing things.
The danger of JIT is that if one activity in the supply chain fails, the whole operations function comes to a
grinding halt.
Quality management
- control
- assurance
- improvement
Quality management is as important as new product development. In business, quality is consistent

performance to customers expectations.
The operations function is concerned with meeting customer expectations. Therefore it is important to close
the gap between customer expectation and customer perception (how they see a product), e.g. a certain level
of customer service is expected at Kmart.
An important principle is that quality is the responsibility of every employee in the business, which leads to
continuous improvement.
Customer Customer
Customer Customer Customer
expectations Customer expectations
perception expectations perception
perception
Expectation > perception Expectation = perception Expectation < perception
Poor quality Good quality

Control:
Quality control is the most common way of ensuring consistent quality in a business. It is the sampling
technique that checks the quality of an item in the transformation process, e.g. quality checks of the
temperatures of the cool room at McDonalds.
Quality control quality improvement
Quality control minimizes the variations to defined limits and then builds systems and procedures to ensure
these limits arent exceeded, e.g. Coca Cola allows only a 2ml variation either side of a 375ml can.
Assurance:
Quality assurance involves putting into place systems and procedures that make sure an error or fault will not
happen, e.g. storing fresh meat below 4C will prevent salmonella. While checking that the meat is stored
bellow 4C is quality control, the system that establishes what sort of checking and when it takes place is
quality assurance.
Quality management must be proactive, rather than reactive. Therefore employees must be trained to assess
the quality of their work, i.e. self-inspection. Both managers and customers must be confident that the
product has consistent quality.
An important part of quality assurance is certification. Certification is where an independent organisation like
Standards Australia inspects and certifies quality products.
Improvement:
Quality improvement involves all employees improving in a business. Operations managers understand that:
Increased customer satisfaction increased sales increased profits grows the value of the business.
One of the most common approaches to improvement is TQM (Total quality management). TQM was
developed by the Toyota factories in Japan and is based on continuous improvement. It is based on:
1. Customer defines quality and then the product designers and operations managers ensure that
customers are always considered.
2. Quality is the responsibility of all employees. They therefore must inspect their own work with
customers in mind and continually think of ways to improve what they do.
3. Develop a business culture that sees a need for quality and seeks to continuously improve in quality
performance.
Overcoming resistance to change financial costs, purchasing new equipment, redundancy

payments, retraining, reorganising plant layout, inertia
Like businesses, products have a life cycle, i.e. they are born, they live, they die, e.g. the Sony Walkman
revolutionised portable music, but made way for CD players and MP3 players, i.e. a change in technology
produced products better suited to customer needs.
If managers dont adjust and cling to products that are dying, there is a gradual loss of customers as they
change to products that better meet their needs.
Change is inevitable, yet some managers resist change, e.g. Coles resisted while Woolworths embraced change
and gained market share.

Managers are often too busy looking at day-to-day activities and problems that they dont have time to
change. Managers must develop strategies to overcome the resistance to change:
1. Financial Costs:
A business might not want to change as the current system may be working and financial resources may be
tight. However, if other businesses change while you dont a loss of market share will be incurred and cost will
become even greater.
When managers are trying to convince shareholders that they require finance, debt financing is not a good
option. Instead mangers could explain to shareholders that a greater portion of profits have to be retained to
spend on the business, rather than be distributed as dividends, e.g. Microsoft.
2. Purchasing New Equipment:
The cost of purchasing new equipment can be very expensive, but it is worth it because if a business doesnt
keep up with technology, future profits can be lost, e.g. Ansett Airlines resisted upgrading their fleet and as
such, the older, less fuel-efficient and less cost-competitive planes couldnt compete with Virgins newer
planes.
Strategies to overcome the resistant to change caused by the cost of new equipment include:
- Outsource the components that would be manufactured by the new equipment to businesses
that have invested in the latest technology, e.g. Apple.
- Lease rather than purchase the new equipment. A big advantage is that no deposit is needed, you
just pay each month. Leasing is where the equipment is owned by a financier and the business
has the right to use it in return for monthly payments, e.g. Qantas leases its A380 Airbuses.
3. Redundancy Payments:
Restructuring a business to cut costs and increase productivity requires a decrease in the size of the workforce.
This means that a number of jobs are no longer need (redundant), but people losing their jobs are entitled to
compensation, called redundancy packages. If managers consider the redundancy costs too high, they often
resist restructuring the business, e.g. Patricks is one of Australias largest stevedoring (loads and unloads
container ships) business. For years the business was grossly overstaffed and inefficient. The redundancy
payments would have exceeded $400 million so the Australian government assisted with a levy on all
containers coming into the country.
Strategies to overcome the resistance to change caused by redundancy costs include:

- Equity finance from shareholders where the business increases share allocation, often called
options. Existing shareholders get the option to purchase additional shares for a slightly reduced
price.
- Effectively plan for redundancies so the necessary finance can be raised over a longer period.
4. Retraining:
The cost of retraining is considerable because employees have to not only learn new skills, but often managers
will also try and implement a new business culture, e.g. Kmart recently retrained every employee in improved
customer service.
Australian businesses are able to compete with businesses in low wage countries like Vietnam and Bangladesh
due to flexibility. Australian business can vary a production run from 500 to 50,000 units. This is because the
employees are multi-skilled due to continuous training.

Strategies to overcome the resistance to change caused by a lack of training include:

- Change the culture of the business by getting all employees to embrace change. Business culture
refers to the attitudes and values held by all the human resources in the business. Continuous
training employees embrace change improvement in everything the business does.
- Businesses must budget for training methods and reward employees who change their behaviour
(Guy Rosso, CEO of Kmart did this).
5. Reorganising Plant Layout:
In manufacturing businesses, the production line represents a large financial outlay. However, technological
developments, particularly in robotics and computerisation, could significantly reduce costs if the layout was
reorganised. Managers often wont replace machinery that is still working with new technology. These
businesses are called legacy businesses because they have a legacy of equipment and employees with the skills
to use the older equipment.
6. Inertia:
Inertia is the lack of resolve or energy to do something about a problem. Sometimes managers feel they do not
have the leadership skills to make the necessary changes, but often it is because they are concentrated on
short-term goals, e.g. increase profits for now but the business suffers in the long run. Managers often do this
because their bonuses are connected to profit. Long-term goals are sacrificial.
Strategies to overcome the resistance to change caused by inertia include:

- Often need to change the management team so that they are in line with the CEOs vision for the
business. Vision is how the business will look in three to five years if the CEO makes the proposed
changes. It is almost inevitable that a new CEO (appointed by the Board of Directors) will bring in
a new management team who share his vision, e.g. what Wesfarmers did when they bought
Coles.
Global factors global sourcing, economies of scale, scanning and learning, research and
development
Global strategies improve the competitive position in the global environment
It is not easy, but Apple Inc. has shown that it can design, market and price a mobile phone better than its
competitors. One of the reasons they could do this by incorporating global factors, including:
1. Global Sourcing:
Global sourcing supply chain management continuous improvement at a lower cost
Global sourcing is where the products or components are acquired outside the home country, usually because
they are cheaper, e.g. Boeings new 787-9 Dreamliner is made up of parts that are globally sourced such as
engines from UK, landing gear from France, fuselage from Italy etc.
Basically, global sourcing + supply chain management increased improvement, decreased costs and
increased market share.
2. Economies of Scale:
Managers must decide on capacity volume when designing a new factory. Capacity volume is the maximum
amount of that product that can be produced in a given period of time.

Economies of scale are the cost savings that result from spreading fixed costs over increased output.
Therefore, average cost decreases as the business gets bigger. This works on equipment used and also by
purchasing large amounts of raw materials. Transportation costs are also important depending on the size of
the operation and the location of the factory.
Only works to an optimum level then diseconomies of scale are set in and occurs when the average costs of
producing a product starts to rise.
3. Scanning and Learning:
The global business environment is constantly changing. Technology is changing at a rapid rate. Therefore,
businesses must be aware of the changes, i.e. scanning and must change the way the business responds and
the way they achieve these new goals, i.e. learning.
Scanning is often called data acquisition. It is done by using BIS (business information systems) which involves
scanning real changes and identifying anticipated changes. Businesses must decide what changes need to be
monitored. A vital part of scanning is interpretation, i.e. deciphering what the data means.
Learning involves taking action to adapt the way things are done in the business to regain a competitive
position, e.g. Samsung has to come up with a product to compete with Apples iPad. Everyone in the business
needs to learn and embrace continuous change.
The scanning and learning process:

1. Find out what the market place wants in a particular type of product.
2. Work out how well our business operations function performs compared to our competitors.
3. Work out what our operations function needs to do better.
4. Work out how this can be done.
4. Research and Development (R&D):
Research and development is the business function concerned with developing new ideas and ways of doing
things, i.e. the basis for new products.
New idea process design new product
All aspects of business in electronics is done to gain a competitive advantage, e.g. Quanta Computers R&D
funds top universities in the USA ($200m)to develop the next generation of computing platforms.
Research and development takes advantage of things like new materials and new knowledge of ways things
can be done to develop a product. The businesses doing things first gain a competitive advantage, e.g. Apple
was the first to effectively utilise touchscreen technology (iPod, iPhone, iPad).

5. Operations Super Summary

Operations: the process of converting raw materials into finished goods.
Operations management: the planning, organising, co-ordinating and controlling of the transformation of
inputs to outputs.
Strategic role: involves l-t management issues (3-5 years)
Influences:
- Globalisation single world market. Result of decrease in communication and transport costs.
- Technology the knowledge of how things are done concerning both the hardware and software
components.
- Quality Expectations meeting, or exceeding, a customers expectations
- Cost-based Competition driving down the costs of warehousing and transportation while spreading
overhead costs.
- Government Policies regulations, subsidies, grants, taxes and tariffs that encourage or discourage
aspects of the operations function.
- Legal Regulations laws that regulate the way things can be done, e.g. OH&S.
- Environmental Sustainability concerned with air, waste, water and environmentally sustainable
products and operations practises.
Strategies:
Quality Having the highest quality goods and services. Good quality prevents costs caused
by product recalls and repairs.
Speed Producing goods faster and delivering services faster. This relates to productivity.
Addressing Dependability Consistently good in both quality and performance. It involves being reliable
performance Flexibility Being more flexible than competitors and being able to make changes to
objectives operations.
Customisation Modifying a standard product to meet the individual needs of the customer.
Cost Producing cheaper, more efficient and with better productivity than competitors.
Logistics Concerned with all the business activities that acquire the materials, moving and
storing them, e.g. change transportation type (trucking, railroad, shipping, air
Address supply freight).
chain management E-commerce Refers to the use of the internet for all aspects of commercial transactions, i.e. an
electronic marketplace (online shopping).
Global sourcing Where products are acquired outside the home country.
Outsourcing Outsourcing When goods, services or activities (but not the core competencies) that would
normally be a part of the business are obtained outside the business.
Quality control The sampling technique that checks the quality of an item in the transformation
process.
Quality Quality assurance Putting into place systems and procedures that make sure an error or fault will not
management happen.
Quality All employees improving in a business, e.g. TQM (continuous improvement).
improvement
Financial costs Financial resources may be tight. Strategies to overcome this include:
- Explain to shareholders that a greater portion of profits have to be retained to
Overcoming the spend on the business, rather than be distributed as dividends, e.g. Microsoft.
resistance to Purchasing new Can be expensive, but if it doesnt happen, future profits can be lost. Strategies to
change equipment overcome this include:
- Outsource the components that would be manufactured by the new
equipment to businesses that has invested in the latest technology.
- Lease rather than purchase the new equipment.

Redundancy Restructuring a business to cut costs and increase productivity requires a decrease
payments in the size of the workforce. Strategies to overcome this include:
- Equity finance from shareholders where the business increases share
allocation, often called options. Existing shareholders get the option to
purchase additional shares for a slightly reduced price.
- Effectively plan for redundancies so the necessary finance can be raised over a
longer period.
Overcoming the Retraining High cost as they have to learn skills and business culture. Strategies to overcome
resistance to this include:
change - Change the culture of the business by getting all employees to embrace
change.
- Budget for training methods and reward employees who change their
behaviour
Reorganising Costs could be reduced if the layout was reorganised. Strategies to overcome this
plant layout include:
- Implement new business culture to alter standing as a legacy business.
Inertia The lack of resolve or energy to do something about a problem. Strategies to
overcome this include:
- Often need to change the management team so that they are in line with the
CEOs vision for the business
Global sourcing Where products are acquired outside the home country.
Economies of The cost savings that result from spreading fixed costs over increased output.
scale
Global factors Scanning and Businesses must be aware of the changes, i.e. scanning and must change the way
learning the business responds and the way they achieve these new goals, i.e. learning.
Research and The business function concerned with developing new ideas and ways of doing
development things.

6. Operations Acronyms
Influences:
GTG LE CoQ pronounced Got-to-go (GTG) le cock
G Globalisation
T Technology
G Government policies
L Legal regulation
E Environmental sustainability
Co Cost-based competition
Q Quality expectations
Processes:
4Vs
Volume
Variety
Variation
Visibility
Strategies:
POGO SQuINT
P Performance objectives
O Outsourcing
G Global factors
O Overcoming the resistance to change
S Supply chain management
Qu Quality management
I Inventory management
N New product/service design and development
T Technology

10.2 HSC Topic: Marketing

Outcomes:
The student:
H1 critically analyses the role of business in Australia and globally
H10 applies mathematical concepts appropriately in business situations
The focus of this topic is the main elements involved in the development and implementation
of successful marketing strategies.

10.2 HSC TOPIC: MARKETING
1. Role of marketing
Consumers decide which businesses succeed and fail as they choose to purchase from businesses who best
meet their needs. Marketing involves understanding customer needs and meeting their needs more effectively
than competitors.
Management must consider other stakeholders such as owners/investors (sufficient profit) and employees
(adequate benefits).
Marketing has to satisfy customer needs, i.e.

- Identify the group of customers who are the focus (target market)
- Research their needs
- Develop a product to meet those needs
After this the business must price the product so customers see value in buying it, communicate the
information to the customer and make the product accessible to the customer.
strategic role of marketing goods and services
Identifying and meeting customer needs is difficult as their needs are always changing, e.g. mobile phones are
always evolving.
Sometimes changes are gradual and predictable, e.g. change towards a healthy lifestyle has made it difficult
for tobacco sellers. At other times the changes are rapid and turbulent, e.g. those associated with the Global
Financial Crisis.
Businesses must monitor changes in the environment and look out for potential customers. They must
determine what motivates them and detect their unmet needs. Businesses must look for possible new
competitors and new technology.
This is called external analysis and is concerned with monitoring the unmet needs of customers, identifying
strengths and weaknesses in competitors, trends in the market place and the technological, consumer and
economic environment.
Businesses must also conduct and internal analysis, which is concerned with things like profitability, customer
satisfaction and product quality. An effective internal analysis enables the marketing function to build on its
strengths and strengthen its competitive advantage.
Strategic role of marketing identify changing environment adapt the business and its products
interdependence with other key business functions
Operations, marketing, finance and human resources are all interdependent, i.e. the individual functions are
unable to operate without the others.
Marketing is the start of a process as it is concerned with finding out not only what the customer wants, but
also with designing a product that meets the customer wants more effectively than competitors.
After the product is designed (marketing function) it has to be manufactured (operations function) and staff
need to be trained (human resources function). Money is needed (finance function) to do the market research,
design the product, train employees and purchase new equipment.

production, selling, marketing approaches
The marketing approach for a business is to satisfy the needs of its customers more effectively than its
competitors. Approaches have changed over time and include:
Production approach:
From 1820 1920 and was all about production. The business had only a broad understanding of customer
needs and manufactured a product that they considered met those needs. The production approach
concentrated on low-cost manufacture achieved through large-scale production, e.g. Henry Fords T-model
Ford which was only available in black.
Selling approach:
From 1920 1960 and was all about selling. This was a major change as managers thought they could deal
with increasing competition with good sales teams. They were very aggressive and tried to convince customers
that their product was much better than competitors. Radio advertising was utilised along with door-to-door
salesmen.
Marketing approach:
A philosophy that believes success comes from a total focus on customer satisfaction, i.e. a satisfied customer
will return for more (relationship marketing). It is much cheaper to retain an existing customer than to try to
get new customers.
Retain customers achieve goals increase profitability and growth
Customer satisfaction is the core of a successful business. Businesses must provide a quality product. Most do
this through TQM (Total Quality Management) which works towards continually improving every aspect of the
production and distribution process. Businesses use outsides bodies like Standards Australia to certify that the
business has procedures and systems that result in a quality product all the time.
Keeping customers satisfied leads to repeat purchases (relationship marketing). Loyalty reward schemes are
often used, e.g. Fly Buys.
types of markets resource, industrial, intermediate, consumer, mass, niche
Businesses must know the different types of market as a business that develops products that better meet the
needs of customers in a specific market will have a competitive advantage. Markets are where the buyers of
products are linked to the business selling the products. They can be physical places where buyers and sellers
meet or intangible networks where buying and selling is conducted over great distance through computers.
Different markets include:
1. Resource Markets refers to business buyers who purchase the factors of production (land, labour, capital
and enterprise) in order to make products or deliver services to customers. The factors of production are:
- Land things such as agricultural land, mineral deposits, forests etc.
- Labour people who provide the range of skills businesses need.
- Capital such things as equipment and factories. These are tools used by businesses to produce,
manufacture and distribute the product (dont confuse with $ capital)
- Enterprise the risk taking by entrepreneurs. Entrepreneurs provide the management skills that
combine the other factors.

2. Industrial Markets refers to businesses that provide products needed to manufacture other products. Many
buyers buy goods only because they are needed to make the product that they manufacture, e.g. Coca Cola
buys aluminium cans from Alcoa.
3. Intermediate Markets refers to the purchase of goods for resale, e.g. Woolworths purchases products to sell
to retail customers.
4. Consumer Markets consists of buyers who purchase goods and services for personal use, e.g. buyers who
purchase clothes, food, electronics etc.
5. Mass Markets refers to the large number of customers who want to buy a standard product such as
electricity or petrol. From the 1930s to the 1960s, many products (e.g. washing machines) were mass-
produced, i.e. the consumers were treated as the same.
6. Niche Markets consists of buyers with specialised needs, i.e. a narrowly defined group of potential
customers, e.g. the proposed Virgin space flight. The advantage of establishing a niche market is that large
competitors are not interested in the market and there is no real competition, i.e. small businesses often
target niche markets.

2. Influences on marketing
factors influencing customer choice psychological, sociocultural, economic, government
The factors influencing customer choice involves what motivates a customer to choose one product over a
competing one, i.e. what lies behind the purchase decisions. Thousands of reasons are grouped into the
categories:
1. Psychological Factors:
Psychological factors influencing customer choice refers to the way we think, feel and reason when we decide
to select a particular product and includes things like the way we perceive the product, our personality,
lifestyle and attitudes and beliefs.
Businesses must understand what the customer is feeling and reasoning because product features can be
added that help the customer gain a more favourable feeling to the product.
Customers buy from a particular brand mainly because it provides them with the psychological benefits of
confidence, esteem and total satisfaction. A brand is a design, logo and name that distinguish a business
products from competing products.
2. Sociocultural Factors:
Sociocultural factors are those influences from the society and culture that the customer is a part of. It
includes things like social class, family, household type, roles and status.
The influence of family and peers has a huge impact on consumer choices. Therefore, changes in society and
social structures need to be monitored.
The trend towards a healthy lifestyle is one of the most significant sociocultural influences. There is strong
social reaction to the aggressive advertising of products with too much fat to children (e.g. McDonalds
advertising targeting children) and there are opportunities to develop products that cater to these changes.
3. Economic Factors:
Economic factors refer to changes in spending and income in the wider economy, i.e. anything to do with
money). Businesses use economic indicators (e.g. new car registrations, new building approvals and retail
sales) to gauge how the economy is going. Fiscal policy is budget policy.
Economy growing confidence high consumers more likely to make large purchases, e.g. cars, furniture,
whitegoods etc.
When there is a loss of confidence, consumers refrain from purchasing large items and save. This makes it
difficult for retails, e.g. during the GFC David Jones was relying on sales to attract customers.
4. Government Factors:
Government factors refer to the capacity of the government to tax, make grants and implement laws and
regulations that impact on the type of product a business markets and the price, e.g. the regulations on
tobacco where the federal government implemented the plain packaging of cigarettes to make the product
less attractive to young people.

consumer laws
- deceptive and misleading advertising
- price discrimination
- implied conditions
- warranties
The purpose of consumer law is to protect consumers from business exploitation. State governments have
many laws to protect consumers, but it is the Commonwealth government that develops laws to control
business behavior.
The Trade Practices Act (TPA), 1974 (Cth) sets out the rules for fair and reasonable behavior by business. The
Australian Competition and Consumer Commission (ACCC) enforce these laws.
TPA sets out laws ACCC administers these laws.
Important aspects of consumer law include:
Deceptive and misleading advertising illegal under the TPA. Examples include deceptive and misleading
advertising information on the features of a product and using bait advertising where they promote a heavily
discounted product when there are very few of the products for sale.
Price discrimination where a good is sold at different prices to different customers. The aim of the legislation
is to try to stop the discrimination against small retailers, who are most likely forced to pay higher prices for
products where larger businesses get the same product at a lower price. This practice is very hard to stop
because the legislation allows for so many exceptions, i.e. ineffective.
Implied conditions both State and Territory Fair Trading Acts and TPA 1974 provide consumers with basic
protection in relation to the goods and services they buy, i.e. they require that any goods sold will comply with
the way they were described to the customer, will be of suitable quality and fit for their intended purpose.
Warranties a warranty is an important aspect in marketing as it provides customers with an assurance that
the product will perform satisfactorily and that any defects will be corrected during the warranty period. They
are particularly important in the marketing of new products. An extended warranty occurs when, for a price, a
customer extends the standard warranty.
ethical truth, accuracy and good taste in advertising, products that may damage health,
engaging in fair competition, sugging
It is vital that businesses are perceived to be ethical. Ethical behaviour is concerned with the way moral, rather
than legal, principles apply to a business.
Truth, accuracy and good taste in advertising:
Consumers have the right to expect truthful marketing of products and services. Consumer laws try to ensure
this. Some examples of inaccurate and/or untruthful forms of advertising are:
- Hidden fees and surcharges that are not disclosed in the advertised price, e.g. insurance costs add
significantly to vehicle hire rates, surcharges such as fuel and departure taxes are on airfares and
there may be hidden activation fees on mobile phone services.
- Closing down or liquidation sales where prices appear to be marked down for clearance while there is
little evidence of what the pre-sale price actually was.
- Undefined terms such as organic, free range, biodegradable or light enable advertisements to
mislead or confuse consumers who are seeking environmentally-friendly or healthier options.
The ACCC (Australian Competition and Consumer Commission) has the power to charge businesses that use
misleading advertising, e.g. Dodo was fined $26,400 for claiming that their broadband service was $39.90 per

month even though consumers could only purchase the plan if they were also signed up for a $29.90 home
phone plan.
Good taste in advertising is much more subjective. Ethnic minorities, animal welfare, bodily functions,
childrens issues, the needs of the aged, medical research and fundraising appeals are some of the areas that
demand sensitivity in advertising.
Products that may damage health:
It is estimated that the average Australian is exposed to over 2000 advertisements a day and some of these are
for products that could be considered unhealthy, e.g. tobacco, alcohol, high-fat and high-cholesterol foods and
over the counter pharmaceuticals. In 2011 there was a heated debate over plain packaged cigarettes with
many studies showing young people will find them less appealing and of lower quality.
Engaging in unfair competition:
Unfair competition can take a number of forms:

- Price fixing where two or more businesses agree to control or fix prices for goods or services they
produce.
- Misrepresentation in advertising false or misleading claims.
- Bid rigging when the tendering process is manipulated by the business involved.
- Predatory pricing a business uses its dominant position in the market place to lower prices to drive
competition out of the market.
- Resale price maintenance suppliers attempt to influence retailers to charge a fixed price to maintain
profit margins.
Sugging:
Sugging is an unethical practice that involves selling under the guise of research. It is illegal in Australia but
very difficult to detect. Market research with the real purpose of selling products or services to the consumer
can be subtle, e.g. surveying a household about primary school students may focus on selling programs to
improve NAPLAN testing.

3. Marketing process
The marketing function is the most important in the business, as if the business gets it wrong, it fails to
understand the needs of customers and/or develop a product concept that is competitive in the marketplace,
and then the business will likely fail.
A carefully considered marketing process is needed.
A business must start with a situation analysis to understand the business environment.
Situation analysis market research, establish market objectives and identify customers.
Objectives are achieved through strategies must check to see if these strategies are working.
situational analysis SWOT, product life cycle
Situation analysis sets out the present state of the business, providing answers to questions asked in the
planning process, describes the market and a business position in that market. It also describes the
environment in which the business is operating, both internal (factors inside the business) and external
(outside), e.g. Qantas internal factors include the types of planes they use and the training of staff while the
threat of a terrorist attack is from the external environment. Qantas used hedging of aviation fuel prices to
gain some control over an external influence.
The two key elements of a situation analysis are: SWOT analysis and product lifestyle.
SWOT analysis is one of the most effective tools to evaluate a business in terms of its competitors. From the
internal environment:
- Strengths anything the business does better than its competitors
- Weaknesses the things that competitors do better.
From the external environment:
- Opportunities changes in the external environment that can be exploited to achieve objectives.
- Threats changes in the external environment that make it difficult to achieve objectives.
e.g. Qantas SWOT analysis:

Strengths Weaknesses
Strong global brand Legacy of industrial agreements (higher costs)
Strong financial resources Cost structure has made international operations less
Loyal, highly skilled workforce competitive
Highly profitable Jetstar brand Losses on international routes
Inability to settle industrial disputes
Opportunities Threats
Can take advantage of Tiger Air recent groundings to Higher costs from aviation fuel and aircrew
gain market share Industrial action as pilots react to the fear of cheaper
Substitute Qantas international routes with cheaper Asian replacements
Jetstar Disputes led to grounding of Qantas planes which
Collapse of Air Australia in Feb 2012 damaged the Qantas brand name
Product life cycle a business must keep a very close watch on their products and the position of their
products on the product lifestyle, i.e. the stages a product goes through. A business with too many products in
the maturity stage of their lifecycle faces a dangerous situation. A business must have new products in the
introductory stage or growth stage to take the place of those in the post maturity or decline stage. The stages
are: introduction, growth, maturity and decline.

Introduction characteristics include:

- Until people get to know the product, sales will grow slowly.
- Heavy promotion and the costs of development often mean negative profits.
- Higher prices can be charged until competitors enter the market.
Growth characteristics include:

- The heavy promotion pays off and sales grow rapidly.
- It is very profitable because prices are high.
- The profits attract competitors.
Maturity characteristics include:

- Sales level off.
- Only occasional advertising is needed to promote product, e.g. Weet-Bix.
Decline characteristics include:

- Sales are falling and there is little purpose in fighting the trend.
- Getting rid of stock requires heavy discounting.
SALES
Differentiation:
- Product design
- High costs
- Focus on quality
- Improve distribution
Standardisation:
- Competitive cost important
- Long production runs
- Introduce small improvements
- Cost minimisation
market research
A business must undertake market research to find out customer needs. Market research is the way
information needed for market decision-making is collected and analysed. This information will guide the
decision making on such things as the needs of customers, what competitors are doing, new product
development and so on.

There are three typical steps in the market research process:

1. Determine information needs working out what information is needed to make the decision.
2. Collecting the data from primary and secondary sources.
3. Data analysis and interpretation.
Determining the information needs:
Info is used to solve problems, e.g. if a new product is being developed and problems emerge, they must find
out what benefits customers most value and find out more about the location and income of the target
market. Managers then must decide on how to collect the information needed to solve the problems.
Data collection (primary and secondary):
Primary data involves original research to solve the problem. The most common methods are:
1. Use of focus groups involves collecting a small group of people who match the characteristics of the
target market.
2. Surveys refers to the questioning of a group of people as to their opinions on issues of importance
to the marketing team. They are popular because they can be conducted relatively cheaply over the
phone or prices can be offered.
Secondary data refers to the facts and figures that have already been collected for other purposes, e.g. the
ABS (Australian Bureau of Statistics) publishes facts and figures on things like geographic location, income and
education levels. Therefore it is much cheaper than primary data. It comes from sources like government
departments, media, company reports etc. Secondary data helps pick up trends in things like fashion, lifestyle,
buying patterns and demographics. The marketing department can pick up anticipated changes in the external
environment and respond to them.
Data analysis and interpretation:
Data and information are different. Data refers to the raw figures and facts which is then analysed to provide
information that is useful in solving marketing problems. This info is then interpreted to solve the marketing
plan. Interpretation is concerned with looking for relationships that explain the meaning of the data.
Need to work out what information is

Determine information data needed to solve the problem
Original material collected

General material collected
to solve the problem
Primary focus groups or surveys used Secondary excellent for picking up trends
establishing market objectives
Marketing objectives set out what the business wants to achieve with its marketing effort, i.e. objectives drive
the marketing effort. Marketing objectives must relate to things like profit, quality and staffing.
Good marketing objectives:

- must be specific
- should be capable of being measured
- must be realistic

Another objective model is the SMART model:

S specific, e.g. increase market share by 5% over last year
M measurable (get figures on), e.g. $100,000 increase
A achievable
R realistic
T time (needs to have a time frame), e.g. 1 year
The most common type of market objective relates to market share which describes a business performance
in the market place compared to its competitors. Other marketing objectives include:
- developing new products to take the place of products in the maturity of the product lifestyle
- entering new markets, e.g. a NSW business opening new stores in Victoria
identifying target markets
The total market is usually too large for a single product to meet the needs of customers in that market.
Therefore most business target a particular group of customers with common characteristics at which to
direct their marketing activities.
The target market refers to the group of actual or potential buyers of the product. It is the group at which the
marketing effort is directed.
When a business really understands its target market, it can often develop new products to meet their needs,
e.g. there is no doubt that The Wiggles understand their target market of preschool children.
developing marketing strategies
Marketing strategies allow a business to achieve objectives.
For the objective: increase market share by 5%, the strategy: heavily promote the product and/or reduce the
price, could be used.
The marketing mix (4 ps product, price, promotion and place) plays an important role in marketing
strategies.
implementation, monitoring and controlling developing a financial forecast; comparing

actual and planned results, revising the marketing strategy
Implementation a process whereby the marketing plans are put into operation. It must be effective (achieve
its goals) and efficient (uses a minimum of resources).
Monitoring essential to ensure the plan is effective and involves watching what happens when the product is
placed in the market. Monitoring is done by:
- Sales analysis the breakdown of sales figures by product, customer or market for a given period of
time, e.g. watching things like warehouse sales to retail shops and sales reports from the sales
representatives.
- Market share analysis refers to the products share of the total market and profitability refers to the
money that is left over after all expenses have been paid.
Controlling process of comparing actual results with planned results. It is done by developing a financial
forecast and comparing actual results against the planned results.
Financial forecasting involves working out the expected costs and revenues of implementing the plan, i.e.
makes an estimate of costs such as the cost of manufacturing the product (including development costs),

promotion costs and distribution costs. It also estimates revenue from sales. However it is not easily done,
even though it will be based on careful research of customers and their needs.
Revising the marketing strategy essential if the forecast proves to be inaccurate as it enables the business to
get the plan back on track as quickly as possible. The marketing mix is usually the starting point of any
revision, e.g. if sales are below the forecast the business can:
- Lower the price and use discounts (price)
- Increase spending on promotion (promotion)
- Increase the distribution intensity (place)
- Improve the benefits from the product through things like better warranty and better after sales
service (product)

4. Marketing strategies
Marketing strategies refers to the ways the marketing function goes about achieving the marketing objectives.
A business must know its market and the needs of their customers. This is done by breaking it up into smaller
parts where customers have common characteristics, i.e. market segmentation.
Then a business identifies which segments match the business resources. A business could develop products
that fit a number of segments, i.e. product/service differentiation.
The business then decides what image (in terms of price and quality) it wants to but forward, before
developing products that will most competitively meet the needs of customers, price, promote and distribute
them.
Marketing strategies achieve marketing goals consistent with overall business goals
market segmentation, product/service differentiation and positioning
Market segmentation:
Market segmentation occurs when businesses focus their efforts on a particular group of customers who have
similar needs. This is because customers needs in the total market are so varied, e.g. Supre targets young
women.
Segmentation allows a business to develop a more competitive product/approach.
Segmentation focus on needs of that group provide better products for that group (therefore more
competitive)
Markets can be segmented on many variables including:

- Gender is crucial in providing different products/styles for women and men. Not only clothes but
also housing, furniture, entertainment and cars, e.g. the Nissan Micra is aimed at females while the
Toyota Hilux is aimed at men.
- Age crucial in determining the needs, e.g. Huggies target families with babies.
- Income very important in products we purchase, e.g. cars, clothing, furniture and housing all contain
segments directed at the rich.
- Lifestyle interests vary greatly from person to person, e.g. health magazines and gyms meet certain
lifestyle needs.
Product/service differentiation:
Product/service differentiation occurs when businesses decide to compete across a number of segments by
changing their products to meet the specific needs of the customers in each segment, e.g. the smartphone
market.
Product/service differentiation is better able to satisfy customer needs in a particular segment but it is a more
expensive strategy than having a standardised product designed to generally meet the needs of all customers
in all segments.
Standardised products can take advantage of economies of scale (lower costs). Economies of scale are the cost
savings, such as bulk-buying, associated with large-scale production.
However, customers are increasingly heterogeneous (have individual needs). The increase in market share for
HTC and the consistent market share of Apples iPhone 4 supports this.

Positioning:
Positioning provides the fit between customers in a particular market segment and the business resources
and skills required to develop a product that will successfully meet the needs of customers in that segment.
Positioning is a perception or image that potential buyers have of a product compared with its competitors,
e.g. a restaurant with a top chef will be positioned at the top of the market while McDonalds will be positioned
lower, promoting value for money.
This shows the relationship between market segmentation, product/service differentiation and positioning.
products goods and/or services

- branding
- packaging
There are two aspects to a product:

- The core product refers to the benefits the product offers to customers, e.g. a can of drink quenches
thirst, a car gets you from point A to point B etc.
- The actual product includes not only benefits but also added features, positioning, brand and
packaging. It also includes intangible features such as a guarantee, possibly delivery and installation
and after-sales service. The actual product is also called the augmented product.
Product strategies refer to the ways a product itself can be used as a strategy to improve competitiveness, e.g.
a car could be made more competitive by extending the warranty.
Typically, the core product is augmented with features like:

- Quality
- Styling
- Warranty
- After-sales service
- A brand name that can be trusted
- Provision of credit, including interest free periods
- Packaging
Branding:
A brand is the heart of marketing and therefore a business. Marketing is all about making the business
products different from its competitors. If a customer doesnt see a difference, they will buy the cheapest or
the most convenient.
A brand is a logo, name, symbol or design (often a combination) that distinguishes a business products from
other products in the market place. Over time a customer identifies the product with the characteristics of the
brand, (e.g. style, reliability, price etc.). Satisfied customers develop brand loyalty.
Brand supports positioning, e.g. Sony does not have to convince customers of quality every time they release a
new product. Brands like Sony develop brands over a long time and it costs a lot of money to achieve this
dominance in the market place.
Brand dominance high profit margins
Packaging:
Packaging has both a functional and marketing role. It protects goods in transit and it contains information
such as identification of the brand, weight and possibly the instructions of the product (functional role). It also
is important in getting potential customers attention (marketing role).
Packaging is all about making the product more competitive. It can give info about possible uses and dangers
associated with incorrect use. It can add to the aesthetics of the product. Packaging is essential to calculate the
maximum space in things like standard containers.
Packaging impacts significantly on the cost of distribution. It needs to support the positioning of the brand, i.e.
an expensive, highly positioned product wouldnt be placed in cheap packages.
price including pricing methods cost, market, competition-based

- pricing strategies skimming, penetration, loss leaders, price points
- price and quality interaction
There are three methods of pricing a product:
1. Costs businesses can work out how to price their products on the cost to develop, manufacture and
distribute. They then add a margin to this (profit) and this becomes the price. It is called cost-based
pricing.
2. Market used by businesses producing commodity products (e.g. wheat, wool, coal, iron ore). They
tend to be price takers and are literally forced to accept the market price. This price fluctuates on the
world market.
3. Competition based businesses look very closely at competitors prices because if a business is
charging more, a customer is likely to go to a competitor. Charging too much less than competitors

can lead to a price war. Lower prices should only be used in the long run if a business has cut costs,
e.g. like Woolworths did to Coles.
Pricing strategies prices are can vary and different pricing strategies can be used to gain a competitive
advantage. The key strategies are:
1. Skimming strategies where the business sets a relatively high price at first and then lowers the price
over time. This helps the business recover its development costs before competition forces a lower
market price. The price is set at what the market will bear, e.g. Microsofts Xbox 360.
2. Penetrating strategies where a business sets a lower price (below competitors) in order to increase
market share. If successful it will increase sales and market share and usually lower per unit costs
through economies of scale. Usually only done for a short period of time as it will impact profit, unless
economies of scale are achieved and profit is maintained.
3. Loss leaders are prices set at a very low level to encourage consideration of a product newly
introduced to the market or to encourage customers to consider other products, e.g. Woolworths use
this with specials, hoping customers do the rest of their shopping there. Businesses must be careful
they are not using bait advertising, which is illegal.
4. Price points is psychological and refers to cut-offs in the minds of customers, e.g. $9.99 is less than
$10 even though it is rounded up to $10 at the checkout. In the minds of customers, under $10 is ok,
but $10 or over is the price point that becomes too high.
Price and quality interaction:
Customers are individuals, varying greatly, with some being price sensitive, i.e. price is the dominant criteria
when a customer makes their choice between competing products and services.
Other customers consider quality, service and image as the dominant criteria when choosing between
competing products and services.
Therefore, a business must understand its customers sensitivity to the different factors, e.g. some Qantas
customers are price sensitive where a 5% increase in prices would see them choose another airline while some
customers insist on the full service (meals, drinks, entertainment).
The solution to the price and quality interaction is multi-branding, i.e. the development of several products,
positioned in terms of quality and price, and supported by a logo, name or symbol the customer associates
with the value or quality of the product, e.g. Qantas underwent multi-branding with their Jetstar brand.
Promotion
- elements of the promotion mix advertising, personal selling and relationship
marketing, sales promotions, publicity and public relations
- the communication process opinion leaders, word of mouth
Promotion is about effective communication with customers. If a customer doesnt know about a product,
they wont buy it, regardless if its the best product. A business can use many techniques to communicate. This
mix of techniques is called the promotion mix.

Elements of the promotion mix:
The promotional mix refers to the way techniques (such as advertising, personal selling and relationship
marketing, sales promotions, publicity and public relations) are combined so that they effectively meet the
communication requirements of a particular business at a particular time.
1. Advertising paid communication with the target market and it is usually designed to be persuasive.
It can be very effective and expensive. Advertising uses various types of media such as television,
newspapers, magazines, radio, social media (e.g. Facebook, Google) and viral advertising. Viral
advertising involves promoting products in such a way (usually humorous) that customers want to
send it to friends (usually via email). A lot of advertising supports the brand and positioning, e.g. the
milk aspect of Cadburys advertising suggests quality and high market positioning.
2. Personal selling and relationship marketing personal selling is what teams of sales representatives
employed by manufacturers do when they sell products to retail outlets. It is one of the most
important promotional tools and is becoming a partnership between the supplier and the retailer, e.g.
Dulux Paint sales reps at Bunnings will replace stock, clean the shelves, ensure the display is
attractive, often serve customers and do point of sale advertising by setting up promotional material.
Relationship marketing is concerned with building a long-lasting relationship, not only between
manufacturer and retailer customer but also between the retailer and their customers, e.g. Myer gets
60% of its business from customers who own a Myer card. There is an ethical dimension to
relationship marketing as social media is increasingly used as a tool to build relationships, some of
which are dubious, e.g. Paddle Pop and Smarties aimed at young children.
3. Sales promotion are non-media communication, e.g. promotional activities such as vouchers,
loyalty card offers and competitions. They are very cost effective and often include special displays in
retail stores.
4. Publicity and public relations increasingly used to communicate with a target market. Public
relations is a planned effort to present a business and its products in a positive light, i.e. ensure strong
public image. It involves activities that are not paid for directly. Big businesses have specialist PR
departments to deal with any media aspect that has the potential to affect the image of a business.
PR is about ensuring that every aspect of the business gives a positive message customers feel good
about. Publicity is concerned with creating newsworthy stories about the business and its products.
Celebrities are often used to wear the products or the talk about them, e.g. Ricky Ponting with Swisse
Vitamins, Derrick Rose $260 million Adidas deal over 14 years. Celebrities are used because people
(young people in particular) listen to their message. Using celebrities is not always ethical as they
sometimes do not use the product. It is also unethical to endorse products like alcohol and tobacco.
Publicity is about creating and reinforcing an image of the business in the eyes of customers. An
effective way of creating a positive image is through sponsorship of special events and sporting
teams.
The communication process:
Marketing is all about communicating with potential customers or buyers in a way that will influence their
behavior. Two important aspects are:
- Understanding what influences buyer behavior
- Understanding who influences buyer behavior
What key influences include personal and psychological factors as well as social and cultural environments in
which people live.
Who buyer behavior is influenced by other people who do things like suggest buying a product or service and
influence whether they buy it or not and where they buy it from.

The people who influence buying decisions in this way are called opinion leaders. Opinion leaders are people
you respect and tend to agree with their views on a whole range of things, including fashion and taste. The
internet and social media have increased the influence of opinion leaders greatly.
National sporting figures and celebrities tend to be very effective opinion leaders, e.g. Nicole Kidman, Michael
Clarke.
Word of mouth communication relies on local opinion leaders. It refers to personal endorsement.
place/distribution
- distribution channels
- channel choice intensive, selective, exclusive
- physical distribution issues transport, warehousing, inventory
The distribution process is about allowing the customers access to the product when they want it. The
distribution channel links the point of manufacturing to the final customer.
Traditional distribution channel:

Manufacturers produce the product wholesaler retailer customer
Although all parties work together, they are all trying to achieve their own goals (maximise profits), often at
the expense of those before or after them.
Modern distribution channel involves vertical distribution where the one business designs, manufactures,
sells, and delivers the product to the final customer, e.g. Walmart, and Woolworths with their Select brand.
Channel choice:
The intensity of the distribution refers to the number of outlets selling the product. The choice of distribution
channel is crucial to success, e.g. Poppy King manufactured lipsticks and delivered them through an exclusive
distribution channel. Her business failed, but if she had of chosen a selective channel she may have been
successful. The main channels are:
1. Intensive distribution chosen when the manufacturer wants to uses as many outlets as possible,
e.g. Coca-Cola uses supermarkets, service stations, vending machines etc.
2. Selective distribution is used when the manufacturer wants the product widely distributed but not
quite to the degree of intensive distribution, e.g. groceries, clothing, furniture
3. Exclusive distribution is often used for products positioned at the top of the market that are high
quality and with prices that indicate exclusivity, e.g. Rolls-Royce cars.
Physical distribution issues:
Physical distribution is about efficiency, i.e. using as few resources as possible to achieve the goals. It is
important as it is a cost component of the final product. If done efficiently (by managing transport,
warehousing and inventory more effectively) it allows a business to gain a competitive advantage over its
competitors.
1. Transport cost-reduction advances in transport have been very significant. The most important
being standardization of packaging to ensure the pantechnicons (warehouse) and containers are fully
loaded and that a business is minimizing its unit cost of transport. Another advancement is the

adoption of pallets and the fitting of automatic roll-on-roll-off conveyor belt technology to trucks
that means the driver can load and unload without assistance.
2. Warehousing technological advancements have led to cost reductions, e.g. Woolworths stopped
using the old warehouse sheds and went to totally sealed warehouses with no lights or windows.
They are totally automated and run by computers. Very few staff are needed and they warehouse and
distribute incredibly large amounts of products. Coles then followed.
3. Inventory stock must be available when the customer wants it, but businesses must take into
account the cost of storage.
people, processes and physical evidence
The classical marketing mix (4 ps) has typically related to traditional manufacturing but now in Australia there
has been a big move from businesses manufacturing goods to provide services. This is due to a great deal of
manufacturing being outsourced to low-wage countries. The people, processes and physical evidence are
crucial parts of the marketing mix in a service business.
People:
People are central to a business, e.g. Kmart focuses greatly on customer service, putting employees through
training on how to deliver it. Therefore recruitment and selection of employees is critical.
Employees selected with desired basic skills training to enhance/develop interpersonal skills happy
customers repeat purchases
Processes:
Processes are very important, e.g. McDonalds, as a fast-food restaurant, must be fast. They spend a lot of time
and money on this, especially on the drive through.
Physical evidence:
Physical evidence in the market place can give a business a competitive advantage. It is the part of the
marketing mix where the customer makes judgments about the business. Quite often the physical evidence is
the most important factor in the customers evaluation of the product, e.g. flying first class on a plane has very
high expectations. If the physical evidence of that expectation isnt there, then you wont repeat purchase and
you will be negative in your word of mouth comments.
e-marketing
E-marketing is concerned with using the internet to research customer needs, develop a brand to meet that
need and then use the internet to sell that product, e.g. the success of www.bookdepository.co.uk probably led
to the failure of Angus & Robertson and Borders. E-marketing has an enormous potential, mainly across two
areas:
1. Access to customers the internet can target an enormous market and because it is so large, there is
a great deal of potential to develop a product that satisfies a small niche in that market, e.g. the Apple
App Store. Of course building a global brand is entirely different and very difficult.

2. The area of costs businesses such as www.bookdepository.co.uk are able to set up factory-type
processes using relatively unskilled labour and consequently they have low costs. Competing
businesses are often very high cost, with highly skilled employees and very expensive retail premises.
E-marketing is growing rapidly and so is the range of products including:

- Consumer products
- Whole range of business services (these include call centres to telephone businesses and banks,
graphic artists, computer programming and accounting services)
Increasingly, functions in a business are outsourced in the e-marketing environment.
global marketing
- global branding
- standardization
- customization
- global pricing
- competitive positioning
Businesses are often tempted to enter the global market as the potential market is enormous. Before doing so,
it is important for a business to consider the following marketing concepts:
1. Global branding:
Customers generally buy things because they have confidence in the brand. If brand was irrelevant, the
customer would buy the cheapest. There has been a move from local brands to become global brands, i.e.
recognized in most countries.
The main reasons for developing a global brand are:

- Growing internationalism of tastes and buying patterns, e.g. smartphones, computers.
- Economies of scale, e.g. Apple have been able to achieve high quality, low cost products.
The advantages of developing a global brand are:

- Potential cost savings, i.e. standardize design, packaging, logo and name across production.
- Customers are increasingly mobile and tend to purchase familiar brands when they travel
- Strong brands attract good prices and significant market share.
2. Standardisation:
Localised and national markets are changing because of travel, communication and transport. This is
contributing to customer needs and tastes becoming increasingly alike.
It therefore makes sense to market a standardized product, e.g. Apple iPhone. A standardised product is a
product designed to meet the needs of every market segment in a particular market. They can achieve
economies of scales resulting in high quality at low prices.
The advantages of a standardised product are:

- High degree of similarity in putting together effective marketing campaigns in different countries.
- Cost savings with things like packaging and staff training.

3. Customisation:
Very few products can be marketed in the same way, i.e. without some degree of customisation.
Customisation is concerned with ensuring there is a better fit between the needs of customers in a global
market and the product, e.g. a standardised Barbie Doll can be customized by adding clothes etc.
The degree of standardisation varies with the product and market. National values are important in food
products, but not in electronic products. Cultural values are important to the elderly and those on low income,
but not to the young and wealthy.
4. Global pricing:
Global pricing is a difficult concept as every product sold in a particular country is sold in that countrys
currency. Currencies change their value in relation to other currencies all the time.
Pricing is important as it is the link between marketing and the business profitability. The purpose of the
business is to deliver value to the customer and pricing is the technique that enables this.
A well perceived brand can charge higher prices, e.g. Apple. They can do this by convincing customers of value,
particularly to do with design, the applications and intuitive operations.
5. Competitive positioning:
Competitive positioning is concerned with creating an image in the minds of customers of the value the
business products can give the customer in a global market where competitors are trying to create an image
that their product offers the customer better value. It is all about value.
The purpose of positioning and branding is to make the value clear to the customer. The following can
influence competitive positioning:
- The number of competing businesses in that market.
- The relationship a business develops with its customers, e.g. Apple with their stores and their social
media channels that they use to keep the customers informed and to launch new products.
- Product and technology development, HTC is building an image of developing new products that
better meet the needs of customers, i.e. product differentiation.
A great deal of very expensive advertising is needed to support the competitive position of a global business.

5. Marketing Super Summary

Marketing: understanding and meeting customer needs.
Marketing management: consider other stakeholders, e.g. owners/investors (sufficient profit) and
employees (adequate benefits).
Strategic role:
- Maximise sales
- Maximise profits
- Increase market share
- Maximise customer satisfaction
Approaches:
- Production approach (1820 1920). The business had only a broad understanding of customer
needs and manufactured a product that they considered met those needs. Concentrated on low-cost
manufacture achieved through large-scale production.
- Selling approach (1920 1960). Managers thought they could deal with increasing competition with
good sales teams. They tried to convince customers that their product was much better than
competitors using radio advertising and door-to-door salesmen.
- Marketing approach A philosophy that believes success comes from a total focus on customer
satisfaction, i.e. a satisfied customer will return for more (relationship marketing). It is much cheaper
to retain an existing customer than to try to get new customers.
Types of market:
- Resource Markets the factors of production (land, labour, capital and enterprise).
- Industrial Markets products needed to manufacture other products.
- Intermediate Markets resale, e.g. Woolworths buys from intermediate market.
- Consumer Markets goods and services for personal use.
- Mass Markets standard product, e.g. electricity or petrol.
- Niche Markets consists of buyers with specialised needs.
Influences:
- Psychological factors the way we think, feel and reason when we decide to select a particular
product.
- Sociocultural factors influences from the society and culture that the customer is a part of, e.g. it
includes things like social class, family, household type, roles and status.
- Economic factors changes in spending and income in the wider economy.
- Government factors capacity of the government to tax, make grants and implement laws and
regulations that impact on the type of product a business markets and the price.
Consumer law:
- Deceptive and misleading advertising they promote a heavily discounted product when there are
very few of the products for sale, i.e. bait advertising.
- Price discrimination where a good is sold at different process to different customers.
- Implied conditions State and Territory Fair Trading Acts and TPA 1974 specify products will be of
suitable quality and fit for their intended purpose.
- Warranties an assurance that the product will perform satisfactorily and that any defects will be
corrected during the warranty period.

Strategies:
Market segmentation When businesses focus their efforts on a particular group of customers who
Segmentation have similar needs.
and Product/service When businesses decide to compete across a number of segments by
differentiation differentiation changing their products to meet the specific needs of the customers in each
segment.
Branding Developing a recognisable and trusted brand that consumers associate with.
Product Packaging Having packaging that supports the positioning of the brand. Both marketing
and functional role (i.e. also protects product and used for ease of storage.)
Skimming strategies Sets a relatively high price (what the market can bear) at first and then
lowers the price over time.
Penetrating strategies Sets a lower price (below competitors) in order to increase market share.
Price Loss leaders Set at a very low level to encourage consideration of a new product or other
products, e.g. Woolworths specials.
Price points Is psychological and refers to cut-offs in the minds of customers, e.g. $9.99 is
less than $10.
Advertising Paid communication with the target market.
Personal selling What teams of sales representatives do when they sell products to retail
outlets, e.g. Coca Cola.
Relationship marketing Building long-lasting relationships between manufacturer and retailer and
Promotion retailer and customers.
Sales promotion Non-media communication, e.g. promotional activities such as vouchers,
loyalty card offers and competitions.
Public relations A planned effort to present a business and its products in a positive light.
Publicity Creating newsworthy stories about the business and its products.
Intensive distribution Chosen when the manufacturer wants to uses as many outlets as possible,
Place e.g. Coca-Cola uses supermarkets, service stations, vending machines etc.
(distribution Selective distribution Is used when the manufacturer wants the product widely distributed but not
channel quite to the degree of intensive distribution, e.g. groceries, clothing,
choice) furniture.
Exclusive distribution Is often used for products positioned at the top of the market that are high
quality and with prices that indicate exclusivity, e.g. Rolls-Royce cars.
Develop a global brand More recognisable as customers are increasingly mobile.
Create a standardised A product designed to meet the needs of every market segment in a
Global product particular market. They can achieve economies of scales resulting in high
marketing quality at low prices.
Create a customizable Ensure there is a better fit between the needs of customers and the product
product in a global market.
Develop competitive Create an image in the minds of customers of the value the business
positioning products can give the customer in a global market.
Marketing objectives set out what the business wants to achieve with its marketing effort. They must relate
to things like profit, quality and staffing.
An objective model is the SMART model:

S specific, e.g. increase market share by 5% over last year
M measurable (get figures on), e.g. $100,000 increase
A achievable
R realistic
T time (needs to have a time frame), e.g. 1 year
The most common type of market objective relates to market share which describes a business performance
in the market place compared to its competitors. Other marketing objectives include:
- developing new products to take the place of products in the maturity of the product lifestyle
- entering new markets, e.g. a NSW business opening new stores in Victoria

6. Marketing Acronyms
Factors influencing customer choice:
PEGS
P Psychological factors
E Economic factors
G Government factors
S Sociocultural factors
Consumer laws influences:

WIPD pronounced whipped
W Warranties
I Implied conditions
P Price discrimination
D Deceptive and misleading advertising
Ethical influences:
TAPES
T Truth
A Accuracy and good taste in advertising
P Products that may damage heath
E Engaging in unfair competition
S Sugging
Strategies:
4Ps + PEG
4Ps Product, Place, Price, Promotion
P People, processes and physical evidence
E E-marketing

G Global marketing
10.3 HSC topic: Finance

Outcomes:
The student:
H10 applies mathematical concepts appropriately in business situations
The focus of this topic is the role of interpreting financial information in the planning and
management of a business.

10.3 HSC TOPIC: FINANCE
1. Role of financial management

Role of financial management to provide the link between what a business wants and the resources that will
be needed to achieve its objectives.
strategic role of financial management
Strategic role of financial management the process of ensuring that the resources needed to achieve
business goals are available when they are needed. In large business, it is done by a senior management team,
led by the Chief Financial Officer (CFO).
Senior management team set direction of business turn goals into achievable objectives
This is not an easy task due to the dynamic external environment, which is often turbulent and affects the
financial markets, e.g. GFC in 2008, Euro crisis in 2012.
objectives of financial management

- profitability, growth, efficiency, liquidity, solvency
- short-term and long-term
Objectives of financial management concerned with levels of profitability and growth that will satisfy
investors in the business and make it possible to attract funds to finance the growth.
Efficiency is important as it impacts on costs and profitability. Liquidity and solvency are important as investors
need to be confident the business can repay any monies due in the short or long term.
Liquidity short term

Solvency long term
1. Profitability revenue from sales (minus) the costs of manufacturing the product or delivering the
service. Profit is important as it is a major factor when people decide to invest.
2. Growth the increase in the value of the business over time and is usually measured by changes in
the share price, e.g. Google shares went from $83 to $300 in 18 months.
3. Efficiency achieving lower costs by increasing output from inputs such as labour or machinery, e.g.
the Airbus A380 is more efficient than the 747, employees at Virgin are more efficient than those at
Ansett as they are multi-skilled (cabin staff clean plane).
4. Liquidity ability to pay short term debts, e.g. Qantas fuel bill must be paid in 7 days. To do this, s-t
assets such as customer debt and inventory may need to be turned into cash.
5. Solvency ability to pay long term debts, often called gearing or leverage. Businesses often use debt
to expand their operations, e.g. Centro used debt to build shopping centres in regional Australia.
Short term relates to the accounting period, i.e. financial year (July 1 June 30)
Long term period greater than the accounting period, e.g. a 10 year mortgage
Liquidity objectives ensuring there is sufficient money to repay s-t debts as they fall due.
Solvency objectives ensuring there is an ongoing cash flow to meet debt repayments in l-t.


2. Influences on financial management

internal sources of finance retained profits
Retained profits money that has been earned by the business and not distributed to its shareholders as
dividends. This increases the share price, e.g. Microsoft did not pay dividends and the share price went from $2
to over $200. Even though shareholders pay capital gains tax when they sell the shares, it is often less than
income tax on dividends.
Retained profits are used to grow the value of the business, i.e. for the development of a new product,
research and development, equipment purchase, training of employees etc.
external sources of finance

- debt short-term borrowing (overdraft, commercial bills, factoring), long-term
borrowing (mortgage, debentures, unsecured notes, leasing)
- equity ordinary shares (new issues, rights issues, placements, share purchase plans),
private equity
External sources of finance typically involve money that people with a surplus of cash want to invest so they
get a return on it. They can lend the cash as debt or become owners in the business through equity finance.
Banks often facilitate this by bringing together lots of small surpluses, but it is also done by individuals on the
stock exchange (ASX Australian Securities Exchange).
Debt:
Overdrafts An agreement between a commercial bank and a business that allows
the business to have a deficit balance on its cheque account to an agreed
Short-term amount. It is continuing credit for the business.
borrowings Commercial Bills A written instruction to repay a specified amount of money on a specific
(shorter (Bank Bill) date in the future. There are three parties lender, borrower and
than the organizer (i.e. bank who does this for a fee the bank doesnt provide
accounting the funds, but guarantees the money will be repaid.) Bank bill is usually
period i.e. for amounts over $100,000 and for a period of between 7 and 180 days,
<12 months) but can be rolled over, i.e. extended.
Factoring The sale of customer debt to a financier or financial institution. Some
businesses factor all their accounts receivable as it is sometimes cheaper
than having an accounts department (form of outsourcing).
Mortgages Secured loans by the land or building the loan is financing. It is a legal
document that is registered at the Titles Office. This means it cannot be
used to secure another loan. Interest on mortgage is lower as it is safer
for the lender.
Debentures Used by large finance companies to borrow funds from the general
public. It involves a loan contract where the borrower gives a written
promise to pay the money back on a specific day, along with interest
Long-term
payments at regular intervals. A prospectus must be produced. The
borrowings
business assets are used to secure the loan. Debentures are very
(greater
expensive, especially the prospectus.
than the
Unsecured notes Like debentures but without the secured creditor. The interest rate is
accounting
(bonds) usually 1% higher to cover the extra risk. Lenders need to check the
period i.e.
borrowing companys credit rating.
over a
Leasing Where the owner of an asset agrees to someone else or another
year +)
business using the asset in return for periodic payments. Advantages
include:

- no upfront payment conserves cash

- flexible payments linked to once a year sales, e.g. wheat
harvester
- Easier to update technology as payments linked to life of asset
- Lease payments are tax deductible
Equity:
Ordinary Shares can be Large companies issue shares to start their business. The money is used to buy the
split in the following four assets the business needs and provides cash needed to operate the business
categories: initially. An ordinary share is a part ownership in a business. It allows a share in
profits (dividends) and allows them to vote in the AGM (Annual General Meeting).
o New Issues Companies supply a prospectus, which outlines the business idea, their strategies
and their financial projections. The money received putting the idea into
practice.
o Share Placement Where blocks of shares are sold to large financial investment institutions. Cheaper
as a prospectus is not required, i.e. reputation gets them through. ASIC must
approve the prospectus to ensure protection of potential shareholders and ensure
corporate law applies.
o Rights Issues Where existing shareholders are invited to buy new shares in proportion to the
existing shares they own, e.g. 1 rights issue for every 2 they own as they get them
below market value. This is done to raise capital.
o Share Purchase Plans Where a company can issue a maximum of $5,000 in new shares to each existing
shareholder without having to issue a prospectus. Therefore it is cheaper and
easier. Attractive to small investors as there is no brokerage (fee for buying
shares) and shares are at a discounted price.
Private Equity Private equity involves investment in unquoted businesses, i.e. no on the ASX.
Private investors may buy out a company due to its asset value, e.g. when Myer
was purchased from the old Coles Group. When it became successful, Myer was
then sold to the general public by issuing ordinary shares.
financial institutions banks, investment banks, finance companies, superannuation funds,

life insurance companies, unit trusts and the Australian Securities Exchange
Financial Institutions:
Banks Invest money deposited by customers, generally lending it out and charging
interest at a higher rate than that given to the depositors. The big 4 banks are:
ANZ, NAB, Commonwealth, Westpac. Banks provide loans to businesses and
other services such as overdrafts, bank bills, cheque accounts, credit cards and
leasing.
Investment Banks Also called merchant banks, they help individual companies and governments to
raise funds (capital). They dont take deposits, but rather offer financial advice,
e.g. Macquarie Bank.
Finance Companies Provide consumer and business finance. They arrange finance from debentures
and also provide lease finance. GE Capital Australia (GECFA) provides finance for
Harvey Norman customers (interest free for a period, then very high rate.)
Superannuation Funds They are important as they invest the large amounts of savings made by their
customers in things like shares and property.
Life Insurance Companies Shares are purchased in companies as they invest the surplus funds from
insurance premiums. This allows businesses to transfer the risk of something bad
happening, e.g. fire, death, injury, burglary.
Unit Trusts Allow a number of investors to pool resources and invest them.
Australian Securities Formed in 2006 replacing the Australian Stock Exchange. It provides a forum for
Exchange (ASX) sale/exchange of shares of those companies listed.

influence of government Australian Securities and Investments Commission, company

taxation
The Australian government has a significant influence on financial management as they establish the
framework of regulations for financial management in the Corporation Laws.
ASIC (Australian Securities and Investments Commission) enforce company and financial laws to protect
consumers, investors and creditors. They also inform the public about Australian companies.
Company Taxation influences things like international competitiveness, particularly the cost structure of a
global business. The Federal Government sets the company taxation rate, currently set at a flat 30% of taxable
profit (could go to 28% in 2013).
global market influences economic outlook, availability of funds, interest rates
Economic outlook the perceptions of how global economic events might impact on the local economy. It
influences financial management as it affects business and consumer confidence, e.g. in 2011 natural disasters
(QLD floods), the soaring Australian $, concerns that the US would move back into recession and the Euro
financial crisis all worried both consumers and businesses.
Availability of funds refers to the level of confidence in the banking system that determines their willingness
to make loans. This is now a very global influence. If confidence high money for loans is readily available
with the banking system actively chasing potential borrowers, e.g. in 2007 when the global economy was
booming compared to in 2009 during the GFC. Interest rates are often lowed to improve the flow of funds, but
it is not easy to reverse a loss of confidence.
Interest rates refers to the cost of borrowing and expresses the risk involved, i.e. high interest rate
compensate for high risk of borrower not repaying. Large businesses can borrow from anywhere in the world
where surplus funds are available. Interest rates vary from country to country depending on the actions of the
central bank (Reserve Bank in Aus.) Interest rates around the world (early 2012):
- Japan = 0.1%
- USA = 0.25%
- UK = 0.5%
- Australia = 4.75%
- Brazil = 12.5%
Each country has different economic circumstances, e.g. Japan, USA and UK are dealing with high levels of
unemployment while Brazil is dealing with high prices and high inflation.

3. Processes of financial management

planning and implementing financial needs, budgets, record systems, financial risks,
financial controls
- debt and equity financing advantages and disadvantages of each
- matching the terms and source of finance to business purpose
The process of financial management focuses on large businesses that tend to plan in 3 to 10 year time frames.
Typical planning (i.e. how much finance and where it will come from) is concerned with things like:
- introducing new technology
- expanding operations globally
- refurbishing and extending the research and development in the business, e.g. Kmart plans to
refurbish 520 stores in the next 3 years.
The following need to be considered when planning:
1. Financial needs how much finance will be needed to achieve the business objective and when it
will be needed. The CFO must determine the best type of finance for efficiency and effectiveness, e.g.
Kmart used retained profits. Growth objectives such as new technology have several financial
implications such as training employees to use the new technology. These have issues for liquidity,
costs and profitability in the s-t, but will hopefully increase productivity, revenue and profitability in
the l-t.
2. Budgets financial forecast of the finance needed to achieve the objective and when the finance will
be needed. Budgets provide specific details. A number of budgets will be developed for things like:
- Capital expenditure
- Ongoing operations
- Cash flow
The important thing about budgets is that they can be used to not only plan but also monitor and control
projects by ensuring management knows when there is excess expenditure in a particular area.
3. Record systems concerned with the gathering, storing and retrieving of all information that relates
to strategies designed to achieve the objective. It allows constant monitoring. Large businesses need
MIS (Management Information Systems) to monitor all aspects.
4. Financial Risk the possibility of not being able to repay a debt when required. Large businesses can
plan for financial risk by transferring it to other businesses specializing in risk, e.g. insurance
companies and hedging businesses (Qantas hedged against fuel prices increasing competitive
advantage). Financial planning takes place in a turbulent, external environment. Qantas management
(financial planner) must anticipate things like aviation fuel increases. To ensure they are in a strong
financial position and they cover their costs, Qantas does things like:
- Placing fuel surcharges on fares
- Reducing the number of flights on particular routes
- Eliminating some of the less profitable routes
- Swapping high-cost Qantas routes with low-cost Jetstar routes
5. Financial controls concerned with putting effective control tools into place which allow managers to
compare what was planned with what actually happened and take corrective action if necessary.
Typically control tools include:
- Budgets
- Financial statements
- Ratio analysis
The purpose is to make sure that what was planned is actually working. The financial controls must be built
into the planning process.

- debt and equity financing advantages and disadvantages of each
Businesses tend to use a mixture of both, depending on the industry (general rule of thumb is debt should be
about 66% of equity).
If the rate of debt to equity is higher, e.g. 80% (i.e. highly geared), then banks will be worried about the
business ability to pay repay l-t debts, e.g. mortgages.
If the rate is lower than the industry average, e.g. 20%, then the business will be seen as a take-over target as
there is potential to increase the value of the business by using debt to fund additional project.
Debt Financing - Flexible repayment periods - Over the life of the loan, interest rates
- No initial expensive outlay may rise, meaning repayments increase,
- Interest is tax deductible leading to increased gearing and
- Ownership and control of the financial risk
business remains with the owners - Danger that an external factor (e.g. 2008
GFC) cuts off supply to credit
Equity Financing - No funds to repay - The business has to make higher profits
- No interest charges to attract investors
- High degree of stability and control - Dividends paid to shareholders are not
- Low risk as dividends dont have to tax deductible
be paid if circumstances change - Owners lose some control of the
business to purchasers/shareholders
- Limits growth as focus on equity limits
finance available for growth
- Profits have to be shared with additional
owners
- matching the terms and source of finance to business purpose
Current assets should be used to pay current liabilities, i.e. s-t funds used to pay s-t debts.
Non-current assets should be used to pay non-current liabilities, i.e. l-t funds used to pay l-t debts.
Long term assets need to be funded so that the repayments on the loan can be matched to the earnings of the
asset, e.g. a 2 year lease or 2 year loan should be used to fund computers as the productive life of a computer
is 2 3 years (similarly, 4 years for vehicles, 10 years for factory equipment).
A 5 year bank loan should never be used to pay suppliers and a bank overdraft should never be used to fund
assets such as a vehicle.
monitoring and controlling cash flow statement, income statement, balance sheet
Preparation of elementary financial statements:
1. Cash flow statement cash flow is crucial and financial managers therefore must be sure that when
bills need to be paid, the cash is available. Some businesses like JB Hi-Fi make most sales around
Christmas and are slower around winter. Therefore, money must be invested in the good times to pay
bills in the slower times or to fund expansion.

A cash flow statement July August September October November

$000 $000 $000 $000 $000
would normally cover
Opening
whole financial year. 2 4 1 (4) (7)
Balance
Numbers in brackets like Cash In 6 7 5 6 21
(4) indicate negative Cash Out 4 10 10 9 9
numbers. The closing Closing
4 1 (4) (7) 5
balance of one month Balance
becomes the opening
balance of the next
month.
Cash inflow comes from normal operations of the business, i.e. selling its good or service. It can also come
from other activities such as issuing more shares or taking out a loan or through the selling of assets like land,
property etc.
Cash outflows are caused by things like paying suppliers, purchasing assets such as equipment, paying tax or
dividends.
Cash does not only include money from the cash register, but anything that can be quickly turned back into
cash, e.g. shares in another business.
2. Income statement summary of the activities of a business. Can also be called the revenue
statement, trading statement or the profit + loss account. It measures the business over time, usually
a year, and provides an insight into the business performance.
The main idea of the income statement is to add up all the money received from selling goods. Businesses
generally buy products from suppliers and add a profit margin, e.g. 50%, and then resell to the customer. The
costs are deducted from the selling price (sales) and the profit is left, i.e. sales costs = profit. Costs can be
either COGS (cost of goods sold) or expenses (e.g. rent, electricity).
From the income statement, the Continuing Operations 2009

gross profit (or net profit) ratio Revenue (sales) $000
2,327,266
can be calculated. COGS (1,823,675)
Gross Profit 503,591
COGS = opening stock + Other income 1,653
purchases closing stock
Sales and market expense (230,411)
GP ratio = (GP/revenue x100) Occupancy exp. (84,551)
e.g. (503,591/2,327,266 x100) = Admin exp. (21,288)
21.6% of revenue is turned into Finance costs (8,036)
(8,036)
gross profit. Other (25,465)
Net Profit 135,493
The income statement measures
Income tax exp. (41,055)
the performance of a business,
i.e. how much profit. Profit for the year 94,438
3. The balance sheet measures the overall wealth of a business, i.e. a financial snapshot of the
business at a particular point in time. The balance sheet sets out:
- The value of the resources the business owns or controls.
- How these resources were financed or paid for.
- The value of the owners share of the assets.

The accounting equation is used:

Assets = liabilities + owners equity
A = L + OE
Assets are the resources a business use to conduct operations. There are current assets (short term) which will
be used or turned into cash in led than 12 months (financial year), e.g. cash, customer debts (accounts
receivable), stock etc. Non-current assets (long term) are resources that will have value for longer than 12
months, e.g. vehicles, equipment, land,
fittings and fixtures etc.
Liabilities are what the business owes, i.e. money owed to people or institutions other than the owners.
Current liabilities are short term debts, e.g. trade credit (debt owed to suppliers, must pay within 30 days,
called accounts payable), overdrafts (debts owed to the bank where the business can take out instant loans
into negative balance). Non-current liabilities are long term debts, e.g. 10 year bank loan, 20 year mortgage.
Owners equity refers to the owners claim on the assets of the business after the liabilities have been paid, i.e.
the net worth of the business. It is what would be left over if the
business was sold and all debts were paid.
The balance sheet both Current Assets Current Liability

sides must equal each
Cash - $82,943 Accounts Payable - $30,000
other, therefore
Stock - $300 Rent - $217
A = L + OE Accounts Receivable - $30
CA Total - $83,273 CL Total - $30,217
A business owner is
entitled to add value to Non-Current Assets Non-Current Liability
the business in case of
resale. This is called Cash Register - $1,200 Bank Loan - $25,000
goodwill and is an Fixtures and Fittings - $20,000
intangible asset (cant be NCA Total - $21,200 NCL Total - $25,000
touched). It is a NCA.
Total Assets Total Liability
Goodwill = the asking
price for a business the TA - $104,473 TL - $55,217
value of the total assets.
Owners Equity
Capital (TA TL) - $49,256
Different users have different uses of financial statements:

- Investors people or organisations with surplus cash which they want to place somewhere it will
grow in value over time. They would be interested to know the performance of the business.
- Creditors an individual or organisation owed money by a business because they supplied that
business with goods on credit. They would be interested to know if the business can pay the money
back on time.
- Banks and financial institutions they are interested to know if the business can pay the interest and
principal (amount borrowed) of the loan.
Summary of financial statements:

- Cash flow statement know when cash is available.
- Income statement performance of the business, usually over a year.
- Balance sheet measure overall wealth of the business.

financial ratios
- liquidity current ratio (current assets current liabilities)
- gearing debt to equity ratio (total liabilities total equity)
- profitability gross profit ratio (gross profit sales); net profit ratio (net profit
sales); return on equity ratio (net profit total equity)
- efficiency expense ratio (total expenses sales), accounts receivable turnover ratio
(sales accounts receivable)
- comparative ratio analysis over different time periods, against standards, with
similar businesses
See next page


limitations of financial reports normalised earnings, capitalising expenses, valuing

assets, timing issues, debt repayments, notes to the financial statements
Financial reports (those mentioned above) are designed to provide basic information to a wide range of
stakeholders. They have limitations as they are general.
Limitations of financial reports:

Normalised Businesses typically have good years and bad years, due mainly to changes from the
earnings external business environment (e.g. 2008 GFC, inflation, interest rate changes etc.) e.g.
in 2008, Rio Tinto had reduced earnings due to the GFC but in 2011 they had record
earnings due to the high prices of iron ore and coal.
For this reason, it is wise to adjust the earnings and overcome this limitation by
normalizing the earnings. This involves averaging the earnings over a number of years to
remove distortions created by exceptional circumstances. It provides a more realistic
assessment of the earnings performance of a business.
Capitalising Where expenses (e.g. putting in a new software system to process sales) are regarded as
expenses a capital item and put into the balance sheet rather than the income statement.
Otherwise, it would reduce the profit on the income statement. The Commonwealth
Bank did this in 2010.
Valuing assets Where the value of a particular asset is estimated. Sometimes it is done accurately, but
other times it is done optimistically (over-estimated) on assets like land and equipment
and this will distort the accuracy of the reports. The method of valuing assets is called
the historic cost. Over time, the assets change value (e.g. property rises while
equipment depreciates).
Timing issues Concerned with ensuring the costs that have been incurred in generating the revenue
are shown in the financial reports (e.g. purchasing stock on credit that has to be repaid
in 2014 and then selling it in 2013 if the profit is included in 2014 reports and the
credit repayment included in 2013 reports it distorts the true picture). Some managers
deliberately adjust the inflows of cash and the payment of debt and this is a significant
limitation of financial reports.
Another aspect is Accounting Standard AASB137 which refers to a liability of uncertain

timing or amount. The timing of liabilities (e.g. holiday leave, long service leave) can be
manipulated and distorts the books.
Debt repayments Can be a limitation because of provisions (a liability of uncertain timing and amount
e.g. holiday leave, long service leave, superannuation etc.). They are different to debts
such as payments to suppliers which have certain timing, i.e. pay on the invoice date and
the amount is very specific. It is the uncertain timing and amounts that creates the
limitations.
Notes to the Notes to the financial statements report detail and additional information (such as the
financial accounting standards that underpin the statements) that have been left out in the main
statements statements. Typical notes to the financial reports include statements like:
- recently issued or amended accounting standards
- critical accounting judgments and estimates
- events subsequent to balance date
ethical issues related to financial reports
Audited accounts:
All private and public companies are required to have their accounts audited. Auditing is a process designed to
establish the truth and fairness of the financial reports. It is done by qualified independent accountants. There
are 2 types of audits:

1. Internal audits used as a control mechanism to ensure the accuracy of the accounts.
2. External audits conducted by independent accountants. They allow external users of the
information (e.g. investors, Australian Taxation Office) to be confident the reports are true and fair.
Inappropriate cut-off periods:
Financial reports must be prepared according to the conventions and standards in the accounting framework.
This allows all reports to be compared and understood easily.
One convention in the accounting framework is that profits need to be matched with the costs and revenues
that generated that profit. The problem is that when a business has to report regularly, the cut-off period isnt
clear. If the cut-off period is inappropriate, the reports give a false impression.
Ethics training is the best management strategy to deal with this problem.
Misuse of funds:
The misuse of funds refers to a range of dishonest practices (generally stealing). They are common and the
people stealing are often in debt and are desperate (e.g. gambling debt).
Dishonest practices are best dealt with by having effective systems and procedures where all financial
transactions are carefully analysed by different sections of the business and discrepancies are quickly
investigated.

4. Financial management strategies

cash flow management
- cash flow statements
- distribution of payments, discounts for early payment, factoring
Cash flow management refers to the way the movement (or flow) of cash from one aspect of the business to
another is managed.
Credit sales invoice (trade credit) cash locked up must be collected (accounts receivable), but customers
try to delay payment cash available for running the business
Cash flow statements:
Cash flow statements show the inflows and outflows of cash. It is often easier to predict the outflows, but
inflows can be estimated by looking at last years sales, e.g. McDonalds have daily projections (sales estimates)
that they believe they will meet.
Cash inflows come from things like:

- sale of goods
- collection of accounts receivables
Cash outflows come from things like:

- payments to suppliers
- expenses (e.g. wages, leasing payments, electricity etc.)
Distribution of payments:
Businesses can often negotiate when expenses like lease payments can be paid, i.e. link it to the cash flow
cycle, e.g. a wheat farmer can link the lease payments for tractors and headers to the once-a-year payment for
their wheat.
Discounts for early payments:
Discounts for early payments allows a customer to deduct a percentage (e.g. 5%) if the bill is paid in 7 days
rather than the normal 30 days. This allows the business to move the cash faster from accounts receivables to
another section of the business more quickly. The 5% discount is often cheaper than using an overdraft.
Factoring:
Factoring refers to the sale of customer debts to a financier. It does add to the business expenses (usually
around 3% for the factoring service), but very effective for rapidly growing businesses as there is pressure to
pay suppliers.
Factoring should be used in conjunction with an effective credit policy so the debts are collected efficiently and
the need to factor is minimized.

working capital management

- control of current assets cash, receivables, inventories
- control of current liabilities payables, loans, overdrafts
- strategies leasing, sale and lease back
Working capital (or liquidity) management is all about paying suppliers bills and other expenses as they fall
due.
It is measured by the working capital ratio (liquidity or current ratio), i.e. ability to pay s-t debts.
- control of current assets cash, receivables, inventories
Control of current assets cash:
Cash is controlled by cash budgets which set out the anticipated sources and uses of cash on a monthly basis.
It is both a planning and controlling tool. It enables managers to time payments on things like insurance when
they have a cash supply.
Control of current assets receivables:
Businesses sell on credit, supply an invoice and expect to be paid on time, but their customers are often
reluctant to pay bills on time. Strategies to correct this include:
1. Credit policy a set of guidelines to staff on how to monitor and collect customer debt. It should
include:
- Setting a credit limit, i.e. the maximum value of credit prepared to give to a customer.
- Set the credit period, typically 30 days but depends on the industry (e.g. sea-food is 7 days,
antiques is 90+ days).
- Set the collection policy, which is a guide to staff on what to do when customers fail to pay
on time, e.g. how to ring customers and advise them of the credit period.
2. Factoring good for when the business is growing rapidly as it is important to have control of current
assets and receivables. The customer debt is sold to a factoring service, who give the business the
money immediately, but charge a small fee (usually 3%).
Control of current assets inventories:
Inventory of stock is often one of the largest assets and includes raw materials, work in progress, component
parts or finished goods (retail businesses mainly finished goods as inventory while manufacturing businesses
raw materials, component parts etc.)
Businesses need inventory so they can respond quickly to customer orders. Therefore, they need an inventory
policy:
1. Inventory policy manages inventory like:

- Where in the factory the inventory is stored.
- What items are stored and how many of each.
- Condition or quality of items.
- Usually computerised.
2. Just in time (JIT) where each inventory item is supplied just in time to be used, e.g. Coca-Cola at
Northmead factory in Sydney use JIT (cans arrive on trucks and are immediately filled dont have to
hold them as stock).

- control of current liabilities payables, loans, overdrafts
Current liabilities are s-t and therefore have to be paid in the accounting period. Most are accounts payable,
i.e. s-t debt to suppliers (30 days to pay also called trade credit).
Control of current liabilities payables:
S-t debts to suppliers need to be paid on time, not before or after. Strategies need to maximise benefits and
remove dangers. If the payment is early, the business is missing out on free money from trade credit. Trade
credit allows a business to use the money until it has to be paid. If the business pays late there is an ethical
issue as they expect others to pay on time.
Control of current liabilities loans:
Loans are often used as a substitute for controlling receivables, (e.g. when important customers are overdue,
managers often use money from loans and overdrafts to pay wages as they fear that ringing big clients about
overdue bills will upset them).
Interest is the cost of the loan increases expenses decreases profitability.
Therefore, capital budgeting is crucial, which is concerned with the finance needed for particular projects.
Projects are assed in terms of their risk and returns.
Control of current liabilities overdrafts:
Overdrafts can help deal with deficits, i.e. periods of negative cash flow. Budgeting cash is an excellent way of
controlling overdraft.
- strategies leasing, sale and lease back
Strategies leasing:
Leasing is a contract that enables a business to control an asset in return for regular payments. Advantages
include:
- The payments can be matched to the earnings of the asset.
- Conserves working capital.
- Allows control and use of an asset.
Strategies sale and lease back:
Sale and lease back became popular in the 1990s. It was common for large businesses to sell their land and
buildings to a financier and then lease them back, e.g. David Jones sold their major city stores and leased them
back. Advantages include:
- Improves working capital (rather than just conserving it)
- The money received can be used for additional projects.
profitability management
- cost controls fixed and variable, cost centres, expense minimisation
- revenue controls marketing objectives
Profits are maximised by controlling costs, e.g. Virgin with its cost effective planes and multi skilled employees.

Cost controls:
Cost controls are the single most important aspect of running a business as it affects profitability and
competitiveness. It is very important for big companies (e.g. Qantas, Telstra) who cant really grow due to the
massive competition. Therefore they must cut costs to improve profits.
Businesses need to benchmark costs, i.e. the process of comparing costs with the most efficient business in the
industry, e.g. Toyota sets the benchmark so other companies must set strategies to lower costs.
Cost controls fixed and variable:
Fixed and variable costs added together = total costs. Fixed costs do not vary with output, e.g. Rio Tinto buys a
dump truck for a set price and this cost doesnt vary with how much it is used.
Variable costs do vary with output, e.g. the fuel the dump truck uses is variable as the more it is driven, the
more fuel it uses. Variable costs also include things like labour costs, electricity costs and raw material costs.
Decrease VCs increase profit and/or decrease price charged to consumers increased competitiveness.
Cost controls cost centres:
A cost centre may simply be a work area, a department or whole factory and the idea is to separate it from the
rest of the business in terms of its cost. Cost centres can be set up to control the variable costs associated with
having a work unit. These costs may be associated with raw materials, storing inventory, overtime payments,
labour etc.
A manager needs to be responsible for the costs and needs to record, measure and monitor cost usage
effectively.
Cost controls expense minimisation:
Expense minimisation is all about reducing expenses such as wages, rent and leasing payments. If done
effectively, it leads to a competitive advantage over competing businesses.
The Fair Work Act places importance on minimising expenses through negotiations and agreeing to a collective
agreement, e.g. Rio Tinto negotiates with employees to improve productivity through expense minimisation.
These individual agreements can only be with employees earning over $100,000 a year.
Revenue controls marketing objectives:
Controlling costs is important but a business must also maximise revenue. This can be done by clearly defining
marketing objectives.
i) Sales objectives need to continuously improve the process that results in sales, e.g. improve the
supply of customer orders. The business must know what the customer wants, i.e. if customer needs
are met more effectively, sales will improve. Customer needs could be met by providing:
- Better quality
- An improved product
- Better design
- Faster or more reliable delivery
ii) Sales mix refers to the breakdown of sales revenue by products, which are typically expressed in
percentages, e.g. Woolworths has gained market share as they continually improve their sales mix.

Customers demand analysis provide products to meet customer needs increased revenue increased
profitability.
iii) Pricing mix refers to the breakdown of products on the basis of their contribution to profitability. It
is critical for retail businesses, e.g. Big W who uses price points (psychological reference points in the
minds of customers e.g. $9.99) in their pricing mix.
iv) Pricing policy the overall pricing strategy that the business will adopt. It is affected by demand and
supply of the products. It also looks at how competitors price their products.
global financial management

- exchange rates
- interest rates
- methods of international payment payment in advance, letter of credit, clean
payment, bill of exchange
- hedging
- derivatives
Global financial management requires greater complexity compared to domestic financial management as the
goods and services need to be paid for in the local currency. It creates uncertainty because exchange rates
fluctuate and makes it difficult for a business to plan.
Exchange rates:
Risk comes from dealing in foreign currencies that are subject to fluctuation. A strong Australian Dollar (when
the A$ is greater than the US$) affects many Australian businesses including:
- Manufacturing businesses
- Tourist businesses
- Businesses providing education to students overseas.
In every case, the price of their products increases as the A$ increases in value. Retail businesses face
increased competition from overseas and online businesses.
Interest rates the price of money. Interest rates vary between countries. Interest rates can be used as a
strategy to gain a competitive advantage, e.g. as a global business, BHP Billiton can borrow money in the
Japanese market where the interest rate is 0.1% (August 2011).

Methods of international payment:
Most business-to-business trade is conducted through credit. Because of foreign exchange and collection
issues, this creates risk. There is a risk of the goods not being delivered and the goods not being paid for. The
following methods help deal with this risk:
Payment in advance Simplest form and is where the money is transferred to the exporters bank account
before the goods are shipped. This minimises risk for the exporter and maximises risk
for the importer. Risk could be minimised by conducting credit checks.
Letter of credit More convenient and minimises risk for exporter and importer, but is more
expensive. The importers bank guarantees that the money will be paid as soon as the
goods arrive.
Clean payment A way of avoiding the fees of a letter of credit. It is where the exporter and importer
handle all the shipping documentation and the banks role is limited to paying the
money when required. It is cheaper as checking the shipping documentation is time
consuming.
Bill of exchange A bill of exchange is a document that instructs the buyers to pay for the goods on a
specific date. Minimises risk for the exporter by allowing the exporter to keep
control of the goods.
Hedging a strategy that enables a business to insure against the effects of exchange rate fluctuation. Hedging
enables a global business to plan without the danger of a negative movement in the currency impacting on
their plans.
Derivatives a contract where the value of the contract is derived from, and dependent upon, the value of
another product. Derivatives can be used to hedge against increases in things such as:
- Commodity prices (e.g. oil, wheat, cotton etc.)
- Changes in interest rates
- Currency fluctuations

5. Finance Super Summary

Financial management: provide the link between what a business wants and the resources that will be
needed to achieve its objectives.
Strategic role: provide the financial resources to allow the implementation of the business strategic plan.
Objectives:
- Profitability revenue from sales (minus) the costs.
- Growth the increase in the value of the business over time.
- Efficiency achieving lower costs by increasing output.
- Liquidity ability to pay short term debts.
- Solvency ability to pay long term debts (gearing).
Influences:
Internal sources Retained profits Money that has been earned by the business and not distributed to its
of finance shareholders as dividends.
Overdrafts The ability to have a deficient balance in a cheque account.
External sources Commercial Bills (Bank A written instruction to repay a specified amount of money on a
of finance s-t Bill) specific date (3 parties lender, borrower and organiser). Bank
debt guarantees money will be repaid.
Factoring The sale of customer debt to a financier or financial institution.
Mortgages A loan secured by the land or building that the loan is financing.
Debentures Borrowing funds from the general public and involves a loan contract
External sources where the borrower gives a written promise to pay the money back
of finance l-t on a specific day, along with interest. A prospectus must be produced.
debt Unsecured notes (bonds) Like debentures but without the secured creditor. Interest rate is
usually 1% higher to cover the extra risk.
Leasing Where the owner of an asset agrees to another business using the
asset in return for periodic payments.
Ordinary Shares can be New Issues investors purchase shares of the business.
split into four categories: Share Placement blocks of shares are sold to large financial
External sources investment institutions. Cheaper as no prospectus.
of finance Rights Issues existing shareholders are invited to buy new shares
equity in proportion to their existing shares.
Share Purchase Plans a company can issue a max of $5,000 in new
shares to each existing shareholder without a prospectus (cheaper)
Private Equity Investment in unquoted businesses, i.e. not on the ASX.
Banks Invest money deposited by customers (generally lending).
Investment Banks Help individual companies and governments to raise funds (capital) by
offering financial advice.
Finance Companies Arrange finance from debentures and provide lease finance.
Financial Superannuation Funds Invest the savings made by their customers in things like shares and
institutions property.
Life Insurance Companies Invest the surplus funds from insurance premiums.
Unit Trusts Allow a number of investors to pool resources and invest them.
Australian Securities Provides a forum for sale/exchange of shares.
Exchange (ASX)
Government Australian Securities and Enforce company and financial laws to protect consumers, investors
influences Investments Commission and creditors.
(ASIC)
Company Taxation The Federal Government sets the company tax rate (currently 30%)

Economic Outlook The perceptions of how global economic events might impact on the
Global market local economy.
influences Availability of Funds The level of confidence in the banking system that determines their
willingness to make loans.
Interest Rates The cost of borrowing and expresses the risk involved.
Financial reports:
Normalised earnings Averaging the earnings over a number of years to remove distortions created
by exceptional, external circumstances.
Capitalising Where expenses are regarded as a capital item and put into the balance sheet
expenses rather than the income statement as it would otherwise reduce the profit on
the income statement.
Limitations of Valuing assets Where the value of a particular asset is estimated. It can be done optimistically
financial reports (over-estimated).
Timing issues Concerned with ensuring the costs that have been incurred in generating the
revenue are shown in the financial reports
Debt repayments Can be a limitation because of provisions (a liability of uncertain timing and
amount e.g. holiday leave, long service leave, superannuation etc.)
Notes to the Notes to the financial statements report detail and additional information that
financial statements have been left out in the main statements.
Audited accounts Internal audits used as a control mechanism to ensure the accuracy of the
accounts. Establishes the truth and fairness of the reports.
External audits conducted by independent accountants.
Ethical issues of Inappropriate cut-off The cut-off period isnt clear. If the cut-off period is inappropriate, the reports
financial reports periods give a false impression. Ethics training is the best strategy to deal with this.
Misuse of funds Refers to a range of dishonest practices (generally stealing). Best dealt with by
having effective systems and procedures where all financial transactions are
carefully analysed.
Strategies:
Cash flow Distribution of Businesses can negotiate when expenses like lease payments can be paid, i.e.
management payments link it to the cash flow cycle
strategies Discounts for early Allows a customer to deduct a percentage (e.g. 5%) if the bill is paid in 7 days
payments rather than 30 days. Means faster cash movement for the business.
Factoring The sale of customer debts to a financier.
Working capital Leasing A contract that enables a business to control an asset in return for regular
management payments. Conserves working capital.
strategies Sale and lease back Selling an asset and then immediately leasing it back. Improves working capital.
Establish an A set of guidelines on how to monitor and collect customer debt. It should
Control of effective credit include:
current assets policy - Setting a credit limit (max value of credit)
receivables - Set the credit period (typically 30 days)
- Set the collection policy (what to do when customers fail to pay)
Factoring The sale of customer debts to a financier.
Establish an An inventory policy should outline:
Control of effective inventory - Where in the factory the inventory is stored.
current assets policy - What items are stored and how many of each.
inventories - Condition or quality of items.
- Usually computerised.
Just in time (JIT) Where each inventory item is supplied just in time to be used.

Benchmark costs Compare costs with the most efficient business in the industry.
Cut variable costs Decreasing VCs like labour, electricity and raw material costs leads to increased
profitability and competitiveness.
Profitability Expense Reducing expenses such as wages, rent and leasing payments leads to a
management minimisation competitive advantage.
strategies Maximise revenue Can be done by clearly defining marketing objectives:
Sales objectives continuously improve the process that results in sales
Sales mix the breakdown of sales revenue by products
Pricing mix the breakdown of products on the basis of their contribution to
profitability.
Pricing policy the overall pricing strategy that the business will adopt.
Choosing the best Payment in The money is transferred to the exporters bank account
method of advance before the goods are shipped. Min risk for exporter, max risk
international for importer.
payment Letter of credit The importers bank guarantees that the money will be paid
Global financial as soon as the goods arrive. Min risk for importer & exporter
management Clean payment The exporter and importer handle the shipping
strategies documentation and the bank pays the money when required.
Bill of exchange A document that instructs the buyers to pay for the goods on
a specific date. Min risk for exporter.
Hedging Where a business insures against the effects of exchange rate fluctuation.
Enables a global business to plan without the danger of a negative movement in
the currency impacting on their plans.

6. Finance Acronyms
Financial objectives:
PLEGS
P Profitability
L Liquidity
E Efficiency
G Growth
S Solvency (gearing)
Financial institutions:
BUF SAIL
B Banks
U Unit trust
F Finance companies
S Superannuation funds
A Australian Securities Exchange (ASX)
I Investment banks
L Life insurance companies
Planning and implementing:

R B CNR remembered as red and blue corner
R Record systems
B Budgets
C Financial controls
N Financial needs
R Financial risks

10.4 HSC topic: Human Resources

Outcomes:
The student:
The focus of this topic is the contribution of human resource management to business
performance.

10.4 HSC TOPIC: HUMAN RESOURCES
1. Role of human resource management

strategic role of human resources
Strategic management involves moving a business from its current position in the market to the managers
vision of the business in a time frame (e.g. five years).
Top management establish strategic goals (e.g. increase market share from 12% to 15% over the next five
years)
Human resource managers are important in developing the strategic plan because the business achieves their
goals through the people they employ. They must identify the employee skills, attributes and behaviours that
will be required to achieve the goals, e.g. Kmart wishes to increase market share by increasing customer
service and to do this they must train staff and give them skills to achieve this goal.
Strategic human resource management (HRM) is concerned with developing management policies that will
deliver the employee skills, attitudes and behaviours.
The marketing function is the heart of the business as it has to constantly research the environment to find
opportunities and identify threats.
Market research find best fit product customers/resources/goals operations function
Finance
All stages require human resources. (all functions are interdependent)
Those that have the skills, attributes and behaviours to do the job well give the business a competitive
advantage.
outsourcing
- human resource functions
- using contractors domestic, global
Outsourcing of the HR function was popular in the 1980s and 1990s as it was cheaper to not have your own
HR employees, which have to be paid all year.
- human resource functions
Starts with job analysis concerned with working out what tasks need to be done for objectives to be achieved
and the skills needed to do the tasks.
Then recruit and select the people best able to do the tasks.
Training and development is also important.
HR also has other functions such as:
- grievance procedures
- monitoring OH&S issues
- EEO (equal employment opportunities) issues
- Planning for the development of a business culture
Today, the operations function has taken over many HR roles, e.g. recruitment, training and OH&S.
Outsourcing is still used, e.g. employment and recruiting agencies.

Businesses use outside employment agencies to conduct recruiting, particularly for temporary jobs that are
low skilled and do not require costly training.
Large businesses still recruit high value employees as they want a strong relationship to form. It is important
to keep these employees as they are expensive to train.
Employee attributes are the most important criteria when recruiting as skills can be taught but it is difficult to
change attitudes.
Business has a particular business culture select employees with special attitudes achieve goals
*An external employment agency cannot achieve the above.
The main focus of HRM is to outsource any function that improves efficiency and cuts costs. Most businesses
keep in-house any HR activity that requires understanding the business and its customers, identifying future
leaders and promoting change.
- using contractors domestic, global
Use of contractors can give businesses flexibility as there is no long term commitment between a contractor
and a business. When not required, a contractor can be let go, unlike a permanent employee who would have
to be dismissed.
Employees and contractors have different employment contracts, i.e. legal difference. The ATO defines an
independent contractor as an entity (individual, partnership, trust or company) that agrees to produce a
designated result for an agreed price. An independent contractor:
- is paid for results achieved
- provides all or most of the necessary equipment to complete the work
- is free to delegate work to other entities
- has freedom in the way the work is done
- provides services to the general public and other businesses
- is free to accept or refuse work
- is in a position to make a profit or loss
Large businesses use contractors globally and domestically as they are cost-effective.
Domestically cost effective because of the flexibility, e.g. letting contractors go in the GFC.
Globally cost effective because there is a greater pool of talent, labour law variances and wage rates, e.g.
Levi produces jeans cheaper by using contractors in Vietnam.
Many large businesses approach the HR function by building a core of high value employees, in a long term
relationship and an outer ring of employees in a more casual relationship. These relationships are mainly
concerned with outsourcing.

2. Key influences
stakeholders employers, employees, employer associations, unions, government

organisations, society
Employers: want to ensure that the employment relations framework:

- provides flexibility, choice and productivity in working arrangements
- hands employees and employers the responsibility of deciding wages and conditions
- provides opportunities for businesses to respond to changes in the external environment
Employees: ensure that:

- agreements to increase productivity are adequately rewarded
- there is appropriate training leading to career opportunities
- the workplace is safe and free from harassment
- they have a reasonable degree of job security
Employer associations: represent businesses in a particular industry and give bargaining strength to the
employer. They also lobby governments to ensure the employers views are considered when regulations are
formed. Employer associations want to ensure:
- industry-wide increases in productivity
- fair reporting of all the employers view in negotiations
Union: give bargaining strength to employees. They want to ensure their members:
- are fairly paid
- work in a safe environment free from harassment and discrimination
- receive expert help in negotiating agreements with employers
- have a high degree of job security
Government organisations: most important one being Fair Work Australia which is responsible for dispute
resolution for setting minimum wages and conditions as well as overhauling the award system. The Federal
Government wants to ensure that:
- there is sufficient flexibility in employment relations to provide the greatest improvement in
productivity, maximum employment and the development of an economy-wide competitive
advantage
- the focus of the federal workplace human resource management system is an agreement-making
between the employer and the employee. These are called collective agreements and are
achieved through enterprise bargaining between the employer and the employee
- the government achieves its goal through organisations such as Fair Work Australia
Society: is affected by business operations as the people who own/work in businesses make up most of
society. Decision making in the HR process influences the availability of goods and services and the prices they
are sold at. It also affects the standard of living and the rate of economic growth, e.g. all Australian strikes
inconvenience society. FWA has reduced the number of strikes.
Summary of the stakeholders in the HR process:
Employer concerned about productivity and costs because these affect the competitive position of the
business.
Employee concerned about working conditions and pay.
The government concerned about things like discrimination in the workforce, e.g. modernising the award
system (under Fair Work Australia) to make things simpler.
Unions and employer associations represents employees and employers.
Shareholders issues such as productivity as it impacts on profitability.

legal the current legal framework

- the employment contract common law (rights and obligations of employers and
employees), minimum employment standards, minimum wage rates, awards,
enterprise agreements, other employment contracts
- occupational health and safety and workers compensation
- antidiscrimination and equal employment opportunity
The current legal framework influencing HRM consists of:
1. Common law refers to laws made by judges in courts.

2. Statute law those made by the Parliament. The statute law is the Fair Work Act (Cth) 2009. This
legislation established Fair Work Australia as the independent umpire.
Fair Work Australia has established the minimum conditions for employment in areas like pay, working
conditions, hours of work and holidays on an industry basis (called modern awards).
st
Modern awards commenced on Jan 1 2010 and it is intended that there will be a continuous shift of
employees from state awards to the Federal modern awards.
To gain above award conditions, employers and employees need to negotiate. Employees want more benefits
and employers want higher productivity.
Once an agreement is reached, a contract is signed and if the contract is breached, the other can go to the
Federal Court to seek compensation. There will be no industrial actions during the term of an agreement as it
is a protected period. Industrial action can occur towards the end of the agreement. 72 hours notice must be
given.
If an agreement cant be reached, FWA help mediate or arbitrate an agreement:

- Mediate where FWA guides both sides
- Arbitrate where FWA determines the new agreement
Enterprise bargaining is where employer and employees negotiate a collective agreement.

- the employment contract common law (rights and obligations of employers and
employees), minimum employment standards, minimum wage rates, awards,
enterprise agreements, other employment contracts
The employment contract is established when an employee accepts an offer of employment (written or
verbal. It gives both employer and employee rights and obligations; some from common law, but most from
awards.
Common law agreement contract of agreement and is legally binding. It sets out how the employee will be
rewarded and the work requirements of the employee. Often used by professionals, e.g. doctors and lawyers
Contracts of employment often have trial periods, where the employee must be paid and can be oral or
written (though written creates certainty)
A typical contract outlines:

- nature of the work
- rewards
- general info, e.g. hours of work

Rights and responsibilities of the employer:

- pay correct wages
- reimburse employees for work-related expenses
- ensure a safe working environment
- not act in a way that may damage an employees reputation or cause mental distress or
humiliation
- not act in a way that will damage the trust and confidence necessary for an employment
relationship
- forward PAYE tax instalments to the Australian Taxation Office
- make appropriate Super contributions
Rights and responsibilities of the employee obligations include:

- obey the lawful and reasonable instructions of the employer
- exercise due care in the performance of work and do it competently
- account to the employer for all moneys while employed
- make available to the employer any process or product invented while employed
- disclose to the employer information received relevant to the business
- be faithful to the employers interest (e.g. not passing info to competitors)
Each modern award contains the 10 minimum employment standards such as penalty rates and sick leave. It
is a part of NES (National Employment Standards) and is set out by FWA. The minimum standards are:
- max weekly hours of work 38 hours per week
- Requests for flexible working arrangements (e.g. parents with children under school age or with a
disability)
- Parental leave up to 12 months unpaid leave plus the right to request an additional 12 months
- Annual leave 4 weeks paid leave per year
- Personal/carers leave 10 days paid
- Unpaid carers leave 2 continuous days unpaid
- Compassionate leave 2 days paid
- Community service leave unpaid leave for voluntary emergency activities and up to 10 days
paid leave for jury duty
- Long service leave
- Public holidays a paid day off on a public holiday except where reasonably requested to work
- Notice of termination and redundancy pay up to 4 weeks notice and 16 weeks redundancy pay,
the actual amount depending on length of service
- occupational health and safety and workers compensation
OH&S refers to all procedures put in place to ensure that the workplace is safe. It involves both legal and
ethical issues.
The employer must ensure (legal duty) the health, safety and welfare of employees. If employees are not
following procedures, the business culture must be changed.
Workers compensation in Australia is a compulsory employer-financed, no fault, occupational disabilities

program for work-related injury and disease.
After an accident the injured worker receives all necessary medical and rehabilitation care and does not suffer
loss of income. Workers comp is a legal consideration, but the aim is to ensure the worker is in the same
position if the accident had not happened (the ethical aspect).
- antidiscrimination and equal employment opportunity
Anti-discrimination refers to measures aimed at stopping unjust or harmful treatment on the basis of things
like race, age, gender, disabilities or sexual preferences.

The legal issue is set out in the legislation:

- Racial Discrimination Act 1975
- Sex Discrimination Act 1984
- Disability Discrimination Act 1992
- Equal Opportunity Act 1987
The ethical issue is difficult to enforce/detect as it is difficult to prove.
EEO (Equal Employment Opportunities) tries to provide opportunities to groups of people who may have
been denied a fair go in the past.
The legal issues are set out in:

- Affirmative Action (EEO for Women) Act 1986 (Cth)
This legislation requires large companies with more than 100 employees to report publicly on the number of
women in new appointments and promotions. The aim is to get senior management to think about what is
right.
economic
Economic influences refer to changes in the level of spending in an economy.
When the economy is booming, employees have greater bargaining power as businesses compete for skill
levels, e.g. the Australian mining sector since 2010 increased wages.
When the economy is in recession, the demand for business products will fall, so it is necessary to reduce staff
to cut costs. There will be a lot of skilled employees unemployed and therefor employees have less bargaining
power.
technological
Technological influences have a huge impact on human resource management and their staff requirements,
e.g. Walmarts barcoding meant they only needed a third of their previous checkout staff competitive
advantage. Walmart are now using RFID (Radio Frequency Identification Technology) NFC (Near Field
Communication), i.e. Google Wallet.
Changes in technology (the way things are done) require training to use the new technology.
Short term can be an issue getting the finance to train
Long term leads to increases in productivity and profitability and reduces costs
social changing work patterns, living standards
Social influences to do with changes in society, i.e. the attitudes, values and benefits in society
Recently changes have been dramatic including:

- changing work patterns
- changing living standards
Changing work patterns in the last 10 years there has been a decline in full-time work and an increase in
part-time and casual work called casualisation of the workforce (Australia has one of the most casualised
workplaces in the world). Significant features include:
- the disappearance of almost all unskilled jobs
- increase in the number of women in the workforce

- growth in the service industries (retail, food services, accommodation and travel)
- reduction of workers in manufacturing
- increased mobility of workers (from one business to another)
- increased numbers of employees working from their homes
Changing living standards used to be measured by GDP/capita (sum total of goods and services produced in
a country in a year/population). However todays standard of living involves more so it is measured in terms of
HDI (Human Development Indicators) as it includes things like:
- longevity
- infant and maternal mortality rates
- education
- crime rates, etc.
According to this, Australia had the highest standard of living in 2011. This was due to equality in income
distribution, access to education and employees thinking about a work-life balance when negotiating
agreements.
ethics and corporate social responsibility
Ethics and corporate social responsibility influences refer to the responsibility of businesses to work with
the full range of stakeholders to help solve societies problems.
Typical e.g.s of CSR include:

- ensure employees have a safe workplace that is free from accidents, harassment and
discrimination there are 135,000 incidents of work-related fatalities, permanent disabilities or
serious temporary disabilities per year. In the 2005/06 financial year, the cost of work-related
injuries/illness was $58 billion.
- AEC (Australian Employment Covenant) a plan to place 50,000 Indigenous people in long-term
jobs within 2 years, e.g. Fortescue Metals and ANZ have Indigenous employment programs.
- Sustainability e.g. BHP Billiton accepts the need to work against global warming, so they are
working to reduce carbon emissions.

3. Processes of human resource management

HRM is about developing effective relationships with employees. It is concerned with the acquisition,
development and maintenance of these employees and also separation through retirement, resignation or
dismissal.
HRM employ staff if they have the right skills then trained competitive advantage
Employees are a valuable resource achieve business goals
acquisition
HRM must decide and identify the tasks that need to be done by employees and the skills that are needed.
The process of acquisition (recruitment) involves:

- identifying staffing needs
- recruiting applicants with the right skills
- selecting the best candidate
In Australia (and most developed countries), there has been a move away from manufacturing (e.g. Pacific
Brands moving offshore) to a service orientated economy. This changes the skills required and means specific
attributes are important, as well as skills, e.g. the ability to relate to a wide range of people.
Also, applicants are not willing to take any job and question things like:
- happy workplace
- career development
- challenging and interesting work
- training and development opportunities
This affects the recruitment process.
Job analysis determining the skills and attributes an employee would need to do the job effectively.
Effective job analysis successful recruitment process

Job analysis job description
Job description (job design) informs a potential applicant how the job will be done.
Job specification describes the type of potential applicants who can do that job.
Effective recruitment effective selection
Selection process of choosing the best candidate to ensure a match between the skills and attributes of the
individual and the job. Must take into account anti-discrimination and equal opportunity legislation.
There are several methods of selection, most common being interviews and work simulations. The methods
must be reliable, valid and cost-effective.
Reliability accuracy + consistency
Interview most common where applicants answer questions that help predict future job performance. Some
e.g. questions are:
- What is your previous work experience?
- What do you think you have to offer the business?
- What are your interests?
Work simulations often more reliable as candidate demonstrates their skills in front of an assessor, e.g.
welding ability

Personality profiling/testing used for some jobs like retailing and service where they select the profile that
demonstrates the ideal attributes. Behavioural question are use such as:
- What would you do in this circumstance?
Validity the degree to which a method actually selects the work behaviours in the job specification, e.g.
compassion is important for an aged care home.
A structured approach to interviews (formal) helps validity. Costs must be taken into account, e.g. too
expensive to offer work simulations to 10 people but a chat over coffee would not find the best candidate.
The method chosen will be a balance between reliability, validity and cost effectiveness.
The final aspect is background checks, where qualifications, experience, criminal behaviour etc. will be verified.
development
Development concerned with improving employee skill and knowledge.
Effective development raise employee skill levels increase productivity
Productivity increase in outputs using the same inputs in a given period of time.
Development increased skill of employees could increase wages, therefore decrease prospect of
unemployment
Induction the training given to new employees to enable them to do the job effectively. It is the immediate
aspect of development. Effective induction not only gives new employees basic skills, but also helps them
understand the business culture and settle into the social aspects of the workplace.
Socialisation fitting in and feeling a sense of belonging.
Training program the systematic way knowledge and skills will be taught to the employee. A typical training
plan includes:
- Needs analysis concerned with identifying the knowledge and skills the employee will need.
- Industrial design sets the objectives for the training program (things the employee has to know
and skills they need to have), how they will be taught and how the program will be assessed. Has
a high cost, therefore requires a budget.
- Implementation the strategies used to teach the knowledge and skills to employees, e.g. on the
job training, instructional video, mentoring etc.
- Evaluation finding out if the training program was successful.
How the business benefits from an effective training plan:
1. Training improves flexibility by ensuring employees carry out the required tasks in a cost effective
manner and monitor the quality of work and develop multi-skills in a range of business activities.
2. Prepares employees for future jobs in the business. It develops l-t relationships, establishes career
paths and identifies the skills and knowledge required for the next promotion.
3. Can protect a business from skills shortages.
4. Easier to adapt to changes in the external environment. Training is need to introduce new products or
change work practices.
Training programs are very expensive and can create liquidity problems (ability to pay s-t debts). But in the l-t,
productivity increases competitive advantage.

maintenance
Maintenance concerned with building l-t relationships with employees. Various strategies are used, such as:
- Reward management monetary and non-monetary benefits employees receive for their work.
For businesses to attract and retain employees, the wages and salaries offered need to be
competitive.
- Performance appraisal provides feedback to both the employee and supervisor. Constructive
feedback employee satisfaction, motivation and acceptance of future challenges
improvement in how the job is done in the future.
- Employee participation
- Concern for OH&S, work-life balance and workplace bullying
separation
Separation the process where an employee leaves a business, either voluntarily or involuntarily.
Voluntary separation requires that the employees receive all relevant entitlements, e.g. payment for any
long-service leave.
Involuntary separation (usually called dismissal). FWA defines 2 types: unfair and fair dismissal.
Unfair dismissal large companies are not permitted to dismiss an employee unfairly. Employees can appeal
to FWA if they feel it was unfair (harsh, unjust or unreasonable or, in the case of redundancy, not genuine).
Small businesses with fewer than 15 employees can dismiss employees, but must follow the Small Business
Dismissal Code.
The most common reasons for dismissal:
1. Unsatisfactory performance fail to meet the required work performance standards. Can be the
businesses fault if acquisition process was poor. Could also indicate inadequate training and support.
2. Misconduct mainly stealing and insubordination (disobedience, disrespect and public criticism of
business)
Sometimes the separation process can lead to problems with unions legal or industrial action. Dismissal can
be costly. Therefore, separation has implications for the acquisition, development and maintenance processes
(interdependent).

4. Strategies in human resource management
leadership style
Leadership style the way managers interact with others and it influences efficiency and employee
absenteeism. The initial work on leadership style was done by Frederick Taylor.
Autocratic Leadership where managers use a high degree of direction and permit little or no participation in
decision making by subordinates. No longer used in developed world, but still used in low-wage countries.
Participative Leadership where managers encourage a high degree of employee participation in the decision
making as well as open communication channels. Employees dont vote but have input, i.e. feedback.
Leadership style used influences the ways employees do their work at every skill level
The leadership style can help to develop long-term relationships with employees.
Motivated employees retain staff decrease cost of staff turnover
job design general or specific tasks
Job design process where a set of tasks and responsibilities are combined to make up a job. The approach to
job design is influenced by the nature of the business, e.g. electronics assembly in China design specific task
jobs (done over and over within 30 seconds) to cut down training costs. However, McDonalds have a number
of different approaches that better meet the social and personal requirements of their employees including:
1. Job rotation where employees move from task to task for variation and counter boredom. Requires
additional training (increased costs) for employees to become multi-skilled.
2. Job enlargement where employees complete several tasks to avoid boredom. Again requires
multiskilling and additional training.
3. Job enrichment where the employee can see the whole approach and understands their role in the
final product.
4. Self-managing teams where the employee is not closely supervised and has some control over how
the tasks are done. They are taught to monitor their own quality.
The difference of general job designs and task specific job designs is the amount of directions the employees
will be given, e.g. a plumber is simply asked to fix a broken water pipe, not specifically how to do it.
recruitment internal or external, general or specific skills
Managers must decide which recruitment strategy is best for the job including:
- internal from within, i.e. promotion positions
- external from outside the business
- recruit people with specific skills
- recruit people with general skills and then train them to do the job

Internal recruitment - Builds l-t relationships when - Difficult to respond to change
people realise they have a as business culture has been
career in the business developed, e.g. Coles Group
- Employees gain expertise before Wesfarmers takeover
- Greater return on money
invested in training
- Builds a pool of highly talented
and well trained employees
External recruitment - New ideas and ways of doing - Costly

things - Unsure of new employee
opposed to tried and tested
one
Often a combination of external and internal recruitment is used, i.e. external for graduates, internal for
promotions. External is required more in growth times as the business is looking to expand.
Factors like how scarce the skills are and how permanent the jobs are affect the strategy used.
Permanent jobs build l-t relationships internal recruitment for promotions

Temp jobs external recruitment agencies used
training and development current or future skills
Development T + D programs affects liquidity (ability to pay s-t debts)
T + D is expensive, so some businesses are tempted to minimise these costs. Currently Australian businesses
focus their formal training on induction and OH&S. HR must make sure employees are well trained for their
current job and also be prepared for future jobs.
- Training for current job establishes competitive advantage, improves quality and productivity
decreased costs in the l-t as less time spent on fixing errors.
- Training for the future l-t relationship protecting against skill shortages (retaining employees)
Unfortunately in Australia, training for the future is a low priority as businesses often focus on s-t productivity.
Businesses tend to rely on other businesses or the employees themselves (uni, TAFE) to get trained before
hiring them.
T + D is about investing in employees shows employees they are valued l-t relationship
performance management developmental or administrative
Performance management the continuous process of identifying, measuring and developing the
performance of individual employees and employee teams. It is fairly new after being developed by Toyota.
Must aim to align the performance of employees with the goals of the business. This means that employees
are constantly adjusting the way they do things to better meet the business goals. Any individual who is
struggling is given both training and coaching. This is development performance management.
The most difficult aspect of development performance management is setting the goals. Everyone must know
what they have to achieve for performance to be measured.

The administrative aspects (keeping tabs on things) of performance management are complex and costly as
they require sophisticated computer software to keep extensive records. E.g. Orica does this and can match
salaries to performance, i.e. reward hard working high achievers.
rewards monetary and non-monetary, individual or group, performance pay
Reward management the monetary and non-monetary benefits employees receive for their work.
For the employees at the bottom of the skill scale, the monetary benefits tend to be awards (minimum
modern awards).
Above the minimum skill level jobs, monetary reward management is determined by negotiation between
employees and employers in collective agreements.
At the highest skill levels (e.g. CEO level), common law agreements are used to determine the reward
packages. Here the agreements are individual agreements.
Reward management programs also include non-monetary benefits, which come from the nature of the work
rather than the wages. They include:
- interesting and challenging work
- socialisation
- recognition and titles
- fringe benefits, e.g. laptops, company cars, super etc.
At the lower end of the skill scale, feedback, recognition and socialisation are crucial for telling an employee
they are valued, e.g. McDonalds crew person of the month.
Most Australian businesses give both monetary non-monetary benefits.
Reward packages align employees to achieve business goals

High performers want recognition and T+D improved career path and l-t relationship
Increasingly, business are organising employees into work teams, e.g. Kmart reward teams that achieve or
exceed monthly sales objectives.
Performance pay where wages and salaries are linked into individual performance in achieving measurable
goals. Becoming increasingly common.
global costs, skills, supply
Large businesses develop HR strategies take advantage of global opportunities increase productivity and
remain competitive
Businesses have to decide whether to use own employees or those in the global environment who have the
required skills but at a lower cost. They must find the most cost effective locations with the right people for
the job.
There are global environments where both goods and services can be produced in a more cost effective
manner, e.g. Pacific Brands in Asia, Telstra has call centres in India.
The most recent development in both the relocation and production of outsourcing is the development of l-t
collaborative partnerships with suppliers. This allows a great deal of control and a focus on quality. Often key
employees are shared between both businesses.

Skills shortages occur in areas like engineering, accounting and mining in both Australia and OS. This may be
due to businesses not doing enough training. In 2010 the Australian Government allocated $3.2 billion to
improve training.
Global skills shortage must identify key employees increased investment in training those who make a
significant contribution to increase the value of the business
Also requires an innovation in recruit talent. In the past, experience was required, but now in a skills shortage,
businesses identify talent and then mentor and train.
workplace disputes
- resolution negotiation, mediation, grievance procedures, involvement of courts and
tribunals
Industrial disputes can produce both benefits and costs. Often benefits are overlooked, but include the
resultant changes after the dispute, which can increase productivity.
Change is difficult to achieve because of inertia and the fear that change threatens job security.
Costs of disputes can be considerable including:

- loss of income for employer and employee
- being seen as an unreliable supplier
- potential to promote distrust between stakeholders
Benefits of disputes are most often the resultant changes, e.g. Patricks stevedoring business had benefits from
their dispute including:
- increased productivity
- increased profitability
Resolution negotiation, mediation, grievance procedures, involvement of courts and tribunals
1. Negotiation discussion aimed at reaching agreement, usually a compromise is required. Typically

union representatives and senior management.
2. Mediation a third party is invited to try to reach an agreement (unbiased). Mediators are skilled in
analysing issues and helping the disputing parties to reach their own agreement.
3. Grievance procedures generally relate to individuals (often employees) who feel resentment
because they feel something is unfair or wrong. A formal system is used to lodge a complaint:
a) Initial meeting with supervisor
b) If not resolved complaint taken to a manager
c) If still not resolved complaint taken to the union
4. Involvement of courts if unable to resolve, FWA makes provision for disputes about a breach of a
collective agreement to be resolved by the Federal Court.
5. Tribunals if the two parties cannot make a collective agreement, the FWA tribunal may become
involved if the dispute is affecting the national interest.

5. Effectiveness of human resource management
indicators
- corporate culture
- benchmarking key variables
- changes in staff turnover
- absenteeism
- accidents
- levels of disputation
- worker satisfaction
Indicators, often called KPI (Key performance indicators), help a business define and measure progress
towards business objectives (in this case HR objectives). They indicate whether the strategies are working or
not (if not must be modified) and they include:
Corporate culture the attitudes, values and behaviours in a business, i.e. how things are done, e.g.
Woolworths employees refer to we when talking about the business a sense of belonging, safety and
quality are important attitudes.
Benchmarking key variables the process of measuring the performance of variables, such as the
effectiveness of recruiting, training, productivity and so on against a standard. The standard is usually the way
the most successful business in an industry do the job, i.e. best practice. A business needs to match its
competitors in productivity and quality or its market share will decrease. HR management must make sure
they recruit people and train correctly. Each business must identify the key resource variables which affect it,
e.g. safety at Orica, customer service at Kmart
Changes in staff turnover where people leave a job and have to be replaced. High levels of turnover must be
avoided as they are disruptive, expensive and bad for morale. Poor workplace (business) culture high staff
turnovers. HR strategy should be concerned with involving employees in the business, i.e. recognition,
promotion, development, performance based pay
Absenteeism refers to employees who are away from work without leave. A clear indicator that HR
strategies are not working. Workers away must be replaced increased costs casual labour may be less
trained poorer quality decrease profitability. Reasons for absenteeism come from poor HR strategies and
include:
- Doesnt have skills, attributes and behaviours to do job well limited job satisfaction
- Job design may be poor boring
- T + D may be lacking
- Recognition is poor
Accidents an indicator that HR strategies in things like job design and training are not working well.
Australian businesses have a lot of accidents. Responsible managers are concerned to ensure that their
employees have the opportunity to work in a safe environment.
Levels of disputation the levels of disputation in a business could indicate a workplace where safety is not
taken seriously as disputes over safety are common. The trend in industrial disputation has been declining for
some time.
Worker satisfaction when employees feel valued, engaged and challenged. A high level of satisfaction
indicates that HR strategies are working and is usually associated with high levels of productivity. Worker
satisfaction can be measured with simple attitude surveys. The standard responses for the things that make
for a high level of satisfaction include:
- Recognition
- Challenging work
- Safe working environment

- Appropriate rewards (performance based pay)

- Employee participation

6. Human Resources Super Summary

Human resources management: the systems that have been developed to manage people within a
business.
Strategic role: involves the l-t planning of staffing in a business. It also involves ensuring that staff are
productive, well-trained and satisfied.
Influences:
Employers Seek and employ labour. Provide employment and determine wages and working
conditions.
Employees Individuals engaged by employers to perform tasks for monetary rewards.
Employer associations Support associations for employers that represent the interests of employers.
Stakeholders Unions Organisations that represent groups of employees on issues such as pay and
conditions, health and safety and job security.
Government The government develops the legal framework of employment and establishes
organisations independent organisations, e.g. FWA
Society Affected by HR processes as people who are employees and employers make up
the majority of society.
The current legal Common law refers to laws made by judges in courts.
framework Statute law those made by the Parliament, i.e. the Fair Work Act (Cth) 2009.
Fair Work Australia has established the minimum conditions for employment in
areas like pay, working conditions, hours of work and holidays on an industry
basis (called modern awards).
Mediate where FWA guides both sides
Arbitrate where FWA determines the new agreement
The employment Established when an employee accepts an offer of employment (written or
contract verbal). It gives both employer and employee rights and obligations. Sets out:
- rights and obligations of employers and employees,
- minimum employment standards,
Legal - minimum wage rates,
- awards,
- enterprise agreements,
Common law agreement contract of agreement and is legally binding. It sets out
how the employee will be rewarded and the work requirements of the employee.
Occupational health OH&S refers to all procedures put in place to ensure that the workplace is safe. It
and safety involves both legal and ethical issues.
Workers A compulsory employer-financed, no fault, occupational disabilities program for
compensation work-related injury and disease.
Antidiscrimination Refers to measures aimed at stopping unjust or harmful treatment on the basis of
things like race, age, gender, disabilities or sexual preferences.
Equal employment Tries to provide opportunities to groups of people who may have been denied a
opportunity fair go in the past, e.g. Affirmative Action (EEO for Women) Act 1986 (Cth)
Economic Economic Refer to changes in the level of spending in an economy. Booming = employees
have greater bargaining power. Recession = demand for products will fall, so it is
necessary to reduce staff to cut costs. Employees have less bargaining power.
Technological Technological Huge impact on human resource management and their staff requirements as
they require training.
Social To do with changes in society, i.e. the attitudes, values and benefits in society.
Social Changing work Casualisation of the workforce, disappearance of unskilled jobs, increase in
patterns number of women, growth in service industry, increased mobility of workers etc.
Living standards Used to be measured by GDP/capita, but now involves HDI (Human Development
Indicators) such as longevity, education, crime rates, mortality rates etc.

Ethics and Ethics and corporate The responsibility of businesses to work with the full range of stakeholders to
corporate social responsibility help solve societys problems, e.g. safe workplace, jobs for Indigenous,
social environmental sustainability.
responsibility
Processes:
Acquisition The obtaining of employees and involves:
- identifying staffing needs
- recruiting applicants with the right skills
- selecting the best candidate
Job analysis determining the skills and attributes an employee would need to do the job effectively.
Job description (job design) informs a potential applicant how the job will be done.
Job specification describes the type of potential applicants who can do that job.
Development Concerned with improving employee skill and knowledge.
Induction the educational process of making a transition to a new workplace or role.
Performance appraisal evaluating the performance of employees.
Training educating an employee in the skills and process of the job.
Development selecting employees for programs that focus on future roles, i.e. management.
Maintenance Concerned with building l-t relationships with employees.
Reward management monetary and non-monetary benefits.
Performance appraisal evaluating the performance of employees.
Employee participation.
Concern for OH&S, work-life balance and workplace bullying.
Separation Where an employee leaves a business.
Retirement usually reached retirement age.
Resignation employee decides to leave the business.
Voluntary offered to employees who then must receive all entitlements, e.g. pay for long-service leave
Involuntary (dismissal) either fair or unfair (where FWA becomes involved).
Strategies:
Leadership Autocratic Where managers permit little or no participation in decision making by subordinates.
style Still used in low wage countries.
strategies Participative Where managers encourage employee participation in the decision making.
Job Design Process where a set of tasks and responsibilities are combined to make up a job.
Job rotation employees move from task to task for variation.
Job design Job enlargement employees complete several tasks to avoid boredom.
strategies Job enrichment employee can see the whole approach and understands their role.
Self-managing teams employee is not closely supervised and has some control over
how the tasks are done. They are taught to monitor their own quality.
General tasks How many directions are needed, e.g. plumber asked to fix that pipe, not how to
or specific tasks specifically do it.
Internal Advantages: Disadvantages:
- l-t relationships as people realise they - Difficult to respond to change as
have a career in the business corporate culture has been
- Employees gain expertise developed, e.g. Coles Group before
- Return on money invested in training Wesfarmers takeover
- Builds a pool of highly talented and
Recruitment well trained employees
strategies
External Advantages: Disadvantages:
- New ideas and ways of doing things - Costly
- Unsure of new employee opposed to
tried and tested one
General skills Recruit people with general skills and then train them to do the job.
Specific skills Recruit people with specific skills who wont require as much training.

Training and Current skills Training for current job establishes competitive advantage, improves quality and
development productivity decreased costs in the l-t as less time spent on fixing errors.
strategies Future skills Training for the future l-t relationship protecting against skill shortages (retaining
employees)
Performance Performance The continuous process of identifying, measuring and developing the performance of
management management individual employees and employee teams.
strategies Development Aim to align the performance of employees with the goals of the business. Employees
are constantly adjusting the way they do things to better meet the business goals.
Administrative Involve keeping tabs on things and require computer software to keep records.
Monetary Financial incentives provided to complete a job.
Non-monetary Includes:
Rewards - Personal satisfaction
management - Socialisation
strategies - Recognition and titles
- Fringe benefits, e.g. laptops, cars, super etc.
Individual or Group work teams sharing rewards for the performance of workplace tasks.
group Individual workers earning over $100,000 can negotiate individual agreements.
Performance Where wages and salaries are linked into individual performance in achieving
pay measurable goals. Becoming increasingly common.
Costs Labour costs vary greatly from country-to-country.
Global Skills Skills shortages often occur when the business does not do enough training, e.g. mines
strategies with apprentices.
Supply Labour force is declining in industrial areas (Europe and Japan) but increasing in low-
wage areas (Bangladesh, Vietnam, Taiwan)
Resolution 1. Negotiation aim to reach an agreement. Usually a compromise is required.
2. Mediation a third party tries to reach an agreement (unbiased).
3. Grievance procedures individuals (often employees) who feel resentment because
Workplace they feel something is unfair. A formal system is used to lodge a complaint:
disputes i) Initial meeting with supervisor
strategies ii) If not resolved complaint taken to a manager
iii) If still not resolved complaint taken to the union
4. Involvement of courts FWA makes provision for disputes about a breach of a
collective agreement to be resolved by the Federal Court.
5. Tribunals if the two parties cannot make a collective agreement, the FWA tribunal
may become involved if the dispute is affecting the national interest.
Effectiveness: The following indicators are used to assess the effectiveness of HRM:
Corporate Culture The attitudes, values and behaviours in a business, i.e. how things are done.
Benchmarking key Measuring the performance of variables, such as the effectiveness of recruiting, training, productivity
variables and so on against a standard (the most successful business in an industry, i.e. best practice).
Changes in staff Where people leave a job and have to be replaced. High levels of turnover must be avoided as they
turnover are disruptive, expensive and bad for morale.
Absenteeism Employees who are away from work without leave. Can be caused by low job satisfaction, low
morale, stress or poor health. High levels of absenteeism disrupt schedules, low productivity and are
costly.
Accidents An indicator that HR strategies in things like job design and training are not working well.
Levels of Could indicate a workplace where safety is not taken seriously as disputes over safety are common.
disputation Monitoring industrial disputes will give an indication of the effectiveness of grievance procedures and
dispute resolution processes.
Worker A high level of satisfaction indicates that HR strategies are working and is usually associated with high
satisfaction levels of productivity. Worker satisfaction can be measured with surveys, polls, suggestion boxes and
group discussions.

7. Human Resources Acronyms

Influences:
STEELS
S Stakeholders
T Technological
E Economic
E Ethics and corporate social responsibility
L Legal
S Social
Indicators:
WAT BLAC pronounced what black
W Worker satisfaction
A Absenteeism
T Turnover of staff
B Benchmarking key variables
L Levels of disputation
A Accidents
C Corporate culture

THE BUSINESS REPORT
The Business Report:

Please note: There are many, many ways to write a business report that is capable of getting full marks. This is
merely how I structured mine and it is what worked for me. Feel free to experiment and discuss it with your
teacher and then do what works best for you.
Structure:
1. Executive summary
2. Body this should involve:
Headings
o Sub-headings
3. Recommendations
4. Summary
How to:
1. Read the stimulus material very carefully. Underline the key points it is asking you to address and
identify the parts of the course that they come from. These key points will become your headings in
your body.
2. Write on the top of your first page Executive Summary and then put it aside the executive
summary will be written last.
3. Begin writing the body. Use the headings you have identified in the stimulus and then break these
down further by using sub headings.
4. When writing the body, use some full sentences but try to steer clear from solid blocks of writing.
Utilise dot points effectively.
5. Draw diagrams, flow charts and graphs when you can. Markers love to see information expressed in
different ways.
6. Use terminology. Perhaps the most important thing you can do is to use the correct terminology from
the syllabus this is what separates band 4 or 5 responses from band 6 responses.
7. Never use first person. Always write in third person. A business report is a formal document and you
should never say I recommend that the business or I would change the way that. Try using It
is recommended that and The business should change the way that
8. Offer strategies and recommendations throughout the report. These are essential.
9. Write the heading Recommendations and briefly list the most important recommendations you can
offer to the business. These must directly relate to the stimulus provided.
10. Write the heading Summary and basically summarise the key points of the report. Try to use full
sentences for this part.
11. Go back to your first page that has Executive Summary written on it and write your executive
summary. The executive summary should outline the main points of the report. Remember to list the
current problems that the business is facing (these will be expressed in the stimulus). I like to end my
executive summary with a key finding. Just write A key finding of this report is and list something
that directly relates to the stimulus of the question. An example is A key finding of this report is that
all of the business functions are interdependent or A key finding of this report is that while
establishing a new business can be challenging, it can offer the owner both financial and personal
satisfaction.

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10.

4 HSC TOPIC HUMAN RESOURCES

HSC Business Studies

10.3 FINANCE ........ 50

10.4 HUMAN RESOURCES ..................... 74

THE BUSINESS REPORT ............ 96

HSC Business Studies Syllabus Revision Guide Page 1

10.1 HSC Topic: Operations

HSC Business Studies Syllabus Revision Guide Page 2

1. Role of operations management

Strategic role of operations management cost leadership, good/service differentiation

To gain a competitive advantage, the following must be addressed:

Basically, higher profitability can be achieved by either:

- Successful differentiation high margins selling lower volumes.

Goods and/or services in different industries

HSC Business Studies Syllabus Revision Guide Page 3

Interdependence with other key business functions

HSC Business Studies Syllabus Revision Guide Page 4

Operations management occurs in a dynamic environment, i.e. constant change.

Quality is meeting, or exceeding, a customers expectations.

We now expect products to be of high quality so now the emphasis is on customisation.

HSC Business Studies Syllabus Revision Guide Page 5

HSC Business Studies Syllabus Revision Guide Page 6

Corporate social responsibility:

Corporate social responsibility:

The difference between legal compliance and ethical responsibility:

Environmental sustainability and social responsibility:

HSC Business Studies Syllabus Revision Guide Page 7

Some approaches are:

Inputs the inputs in an operation system are the:

Intangible inputs time and money

Inputs can be classified as:

- transformed resources (materials, information, customers)

The types of transformed resources are:

HSC Business Studies Syllabus Revision Guide Page 8

- transforming resources (human resources, facilities)

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- sequencing and scheduling Gantt charts, critical path analysis

Scheduling and sequencing:

There are two approaches to scheduling:

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Critical path analysis:

In this example, each

- technology, task design and process layout

Flexible manufacturing systems integrated approach to using technology

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- monitoring, control and improvement

Data needs to be collected about:

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- Flexibility through having processes that are able to change

Transformation process outputs (either products [tangible] or services [intangible])

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Performance objectives quality, speed, dependability, flexibility, customisation, cost

Costs can be categorised as:

New product or service design and development

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The new product development process is as below:

Supply chain management logistics, e-commerce, global sourcing

Supply chain management:

e.g. the supply chain of pumpkins:

Alternative distribution systems available:

Transportation Type Advantages Disadvantages